In insurance terms, what does 'peril' refer to?

In insurance terminology, 'peril' refers to specific causes of loss that are covered by an insurance policy. This means that when a peril occurs, it results in a financial loss that the insurance is designed to protect against. For example, in crop insurance, common perils might include drought, flood, hail, or disease. These are the events that the insurer agrees to provide coverage for, which means that if a farmer suffers a loss due to any of these perils, they can file a claim to recover their losses.

Understanding perils is vital for policyholders since it defines the risks that they are financially protected against. The accurate identification and definition of perils within an insurance policy ensure that policyholders know precisely what situations are covered, allowing them to make informed decisions regarding their coverage needs.