What is meant by the term Peril in insurance?

In the context of insurance, the term "Peril" specifically refers to the cause of a possible loss. This encompasses events or incidents that could lead to damage or destruction of property and other insured interests. Examples of perils include natural disasters like floods and earthquakes, as well as man-made events such as fire or theft. Essentially, insurance policies are structured to provide coverage against specific perils that may impact the insured.

Understanding this concept is crucial as it helps policyholders recognize what risks their insurance policy covers. When assessing a policy, one must look closely at the list of covered perils to understand what scenarios will trigger a claim and under what circumstances the insurer is obligated to provide compensation. This clarity is vital for effective risk management and financial planning related to potential losses.