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

In an insurance context, the term 'peril' refers to a cause of loss. This definition is fundamental to understanding how insurance policies operate, particularly property insurance. Perils are the specific risks that can cause damage to insured assets, such as fire, theft, windstorm, or earthquake. Insurance policies typically specify which perils are covered, meaning that if a loss occurs due to one of these named perils, the insurer will be responsible for compensating the insured for their losses.

Understanding perils is crucial for both insurers and policyholders as it helps in assessing risk and determining appropriate coverage. Knowing what perils are included in a policy can also guide policyholders in making informed decisions about their insurance needs. This term directly impacts the evaluation of claims, as the cause of the loss must align with the covered perils in the policy for a claim to be valid.