Each year, a large number of Indian businesses file insurance claims ,only to receive a claim rejection letter which leaves them completely shocked. The policy was very much there. The premium was paid. But the damage? Not covered. The reason for this frustrating gap almost always comes down to one single confusion: the named perils vs all risks coverage.
Most business owners simply choose the cheaper option without really knowing what their coverage is all about and what they are protected from. And this decision, as we will find out by the end of this blog, can cost them lakhs when an unexpected loss comes knocking on their doors.
This article explains, in simple terms, the details of both coverage structures . We will tell you what they cover, where they fall short, the difference between them , and which one your business in India really requires.
Let’s proceed then!
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Key Takeaways
- Named perils policies only compensate for the risks that are specifically listed in the policy.
- All risks coverage protects against all losses except for those that are explicitly excluded.
- In named perils insurance, the policyholder needs to prove that the coverage includes the specific peril.
- With all risks coverage, the insurer has to prove that an exclusion applies to a claim, in order to deny it.
- Named perils policies are typically cheaper but can potentially leave important coverage gaps.
- All risks coverage is often preferable for businesses having high-value assets, complex operations, or those located in flood-prone areas.
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Named Perils vs All Risks Coverage: The Core Differences
The table below captures the key distinctions between the all risk policy vs named perils structure:
| Parameter | Named Perils Policy | All Risks Policy |
| Coverage Basis | Only listed perils are covered | All causes covered except exclusions |
| Burden of Proof | Policyholder proves listed peril | Insurer must prove an exclusion applies |
| Premium Cost | Lower | Higher |
| Claim Disputes | More frequent | Comparatively fewer |
| Coverage Breadth | Narrow and defined | Broad and comprehensive |
| Common Indian Products | SFSP Policy | CAR, EAR, Marine All Risk, EEI |
| Best Suited For | Businesses with predictable risks | Businesses with diverse risk exposure |
What Is a Named Perils Insurance Policy?
A named perils insurance policy india ( also referred to as a specified perils policy) covers your business assets only against risks that are explicitly listed in the policy document. If a peril is not named, it is not covered. As simple as that!
The most widely used named perils policy india for commercial property is the Standard Fire and Special Perils Policy (SFSP). Issued under IRDAI guidelines and standardised across insurers, the perils covered under insurance in an SFSP policy can typically include:
• Fire and explosion/implosion
• Lightning strikes
• Riots, strikes, and malicious damage
• Storms, cyclones, typhoons, floods, and inundation
• Earthquake, volcanic eruption, and other convulsions of nature
• Aircraft damage
• Missile testing operations
• Bush fire
The named perils policy india, particularly the SFSP, has served lakhs of businesses well for decades. But here is the critical limitation: if your premises suffer damage from a peril not on that list ( say, accidental damage during an internal shift of equipment, or water damage from a burst internal pipe ) your claim will be denied, full stop.
Under a named perils insurance policy, the burden of proof rests squarely with the policyholder. You must demonstrate, clearly and convincingly, that the loss was caused by a peril explicitly listed in your commercial insurance policy india. This often becomes a major source of claim disputes, particularly when causes of damage are ambiguous or involve overlapping perils.
What Is All Risks Coverage?
All risks coverage operates on an entirely opposite philosophy. Rather than listing what is covered, an all risk policy covers every cause of loss , unless it is specifically excluded. The coverage is, in effect, presumed unless the insurer can prove otherwise.
This is not just semantics. In legal and claim terms, it is a profound difference. Under an all risk policy, if you file a claim, the onus shifts to the insurer. They must demonstrate that your loss falls under a specific exclusion in the policy to justify denial. This alone makes all risks coverage significantly more policyholder-friendly.
In the Indian market, all risks coverage is most commonly found in products such as:
• Contractor’s All Risk (CAR) Policy — A CAR insurance policy is widely used in infrastructure and construction projects
• Erection All Risk (EAR) Policy — An EAR policy is often used for plant and machinery installation projects
• Marine All Risk Policy — Covers goods in transit by sea, air, or road
• Electronic Equipment Insurance (EEI) — This commercial insurance policy is becoming increasingly relevant for IT firms and data centres
Even if your policy is all risk, you should know that some standard exclusions will still apply to everyone. Usually, these exclusions can include wear and tear, wilful negligence, inherent vice, war and nuclear perils, and gradual deterioration. These are standard, disclosed exclusions that any business owner should be familiar with before making a purchase.
Premium Costs and Real Value
Let’s talk about the biggest reason why most Indian businesses often choose named perils: cost. A named perils policy india, particularly the SFSP, comes with a significantly lower premium than an all risk policy for the same sum insured. For example, for a small manufacturing unit, this cost difference can tilt the purchasing decision towards a named perils insurance policy.
However, the question that really matters is: how much will it cost you if you are uninsured and a peril that you did not think of happens? The Indian insurance market has documented quite a few alarming instances , particularly in the MSME sector. Here, businesses were able to recover only 40% to 60% of their losses, as their named perils copolicy did not cover the actual cause of damages.
It’s acknowledged that all risks coverage will certainly command a higher premium but ,at the same time , it will reduce the chance of a significant, uncovered loss considerably. For companies holding high-value assets, having costly machinery, or located in geographically vulnerable areas ( for example, flood-prone zones in Kerala, Assam, or Bihar), an incremental premium for an all risk policy could be a rational, well thought-out business expense
Besides, premium costs for both these types of policies depend on several factors such as the nature of the industry, location, the total insured value, previous claims history, and the level of risk management that has been implemented. Engaging an insurance broker can help you negotiate optimal terms for either of these policies.
When to Choose Named Perils vs All Risks Coverage for Your Business
There simply cannot be a one-size-fits-all answer as to whether your business will require named perils insurance or all risks coverage. It boils down to a combination of factors related to your operation.
For example, a manufacturing unit with standardised risks ( fire, flood, earthquake and so on) in a well-defined geography may find the SFSP with certain endorsements to be sufficient. On the other hand, a construction company dealing with infrastructure contracts running into the crores cannot overlook the shortcomings of named perils and must consider a CAR or EAR policy. A retail business storing high-value inventory needs to carefully evaluate whether their perils covered under insurance include theft, accidental damage, and water ingress.
IT companies and fintech firms should seriously think about the possibility of combining all risks coverage structures with cyber insurance . This is because, they are exposed to both physical and digital risks. For marine exporters, all risks insurance is almost a must, as the variety of risks during transit (both named and unnamed ) is so extensive that a specified perils approach won’t work well enough.
Whichever structure you decide on, the most crucial step is to thoroughly read the policy document, especially the exclusions section. Most claim disputes in India result not only from insurer bad faith but also from policyholder misconceptions about what is covered. Do not assume. Verify, and if you are unsure, get in touch with a reputed insurance broker or advisor.
The Bottom Line:
The difference between named perils vs all risks coverage is not related to policy terminology alone. Actually, it is a big business decision that affects how much financial risk your company is taking on versus how much it is transferring to an insurer. In the rapidly changing and often unpredictable business environment in India, making the right choice is very important.
Named perils policies offer predictability and lower premiums for businesses with well-defined, manageable risks. All risks coverage offers breadth, legal leverage in claims, and peace of mind for businesses operating in complex, high-value, or geographically vulnerable environments. Both have their place, but neither should be chosen without a clear understanding of what each actually delivers.
Take the time to assess your business risk profile honestly. Engage a seasoned insurance broker or advisor such as Bimakavach. And make sure the policy you purchase reflects the risks your business actually faces ; not just the ones you hope it will never encounter.
Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Please consult an insurance advisor for personalised guidance.
Frequently Asked Questions (FAQs)
Is the Standard Fire and Special Perils ( SFSP) Policy a named perils policy?
Yes. The SFSP policy is a classic example of a named perils insurance policy. It covers only the specific perils explicitly listed in the policy document ( such as fire, lightning, flood, earthquake, and riot). Any damage caused by a peril not included in that list will not qualify for a claim, regardless of the extent of the loss. This is why businesses with diverse or unpredictable risk exposure often require additional endorsements or a separate all risk policy to plug the coverage gap.
Who bears the burden of proof in an all risks coverage claim in India?
Under an all risk policy, the burden of proof shifts to the insurer. If a business files a claim, it is the insurance company’s responsibility to demonstrate that the specific cause of loss falls within a stated exclusion in the policy. This is the reverse of how it works under a named perils insurance policy, where the policyholder must prove that the loss was caused by a listed, covered peril. This legal distinction is one of the most significant practical advantages of all risks coverage, especially during complex or disputed claims.
Can a named perils policy be enhanced to match all risks coverage?
While a named perils policy cannot be directly converted into an all risk policy, its coverage can be significantly broadened through endorsements and add-on covers. Extensions such as machinery breakdown insurance, electronic equipment insurance, business interruption cover, and terrorism cover can address many gaps in a standard SFSP policy. However, certain risks such as accidental damage, mysterious disappearance, or unforeseen operational incidents may still remain unaddressed. For truly comprehensive protection, businesses with complex risk profiles are advised to opt for a purpose-built all risks coverage product.
