What does the term 'peril' refer to in an insurance context?

In an insurance context, the term 'peril' specifically refers to a cause of loss or damage that an insurance policy covers. This can include events such as fire, theft, vandalism, and natural disasters. Understanding perils is crucial because they determine what types of risks the insurance policy will protect against. For example, if a homeowner has a policy that covers fire but not flood, in the event of a flood, the policyholder would not receive compensation due to the absence of flood as a covered peril.

The concept of peril is foundational to insurance contracts, as it defines the specific risks that insurers agree to cover in exchange for premiums paid by the insured. Each insurance policy typically outlines its covered perils, and knowing these is essential for policyholders to assess their coverage needs accurately.