Definition
Peril
A peril is the actual cause of a loss, such as fire, flood, theft, accident or illness, against which insurance provides protection.
Insurance policies are defined by the perils they cover (named perils) or by covering all perils except those excluded (all-risk). A fire policy covers the peril of fire; a motor policy covers perils like collision, theft and certain natural events.
Peril is distinct from hazard, which is a condition that increases the likelihood or severity of a peril, for example storing inflammable goods raising fire risk. Understanding which perils are covered, and which are excluded, is essential to knowing what a policy will actually pay for.
Related terms
- HazardA hazard is a condition or circumstance that increases the probability or severity of a loss from a peril.
- ExclusionAn exclusion is a specified condition, event or circumstance that an insurance policy does not cover.
- Pure RiskPure risk is a situation with only the possibility of loss or no loss — never gain — and it is the only kind of risk that is insurable.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.