What does the term "peril" refer to in insurance?

The term "peril" in insurance refers to the cause of loss or damage that an insurance policy covers. It identifies specific risks or events that can lead to a claim, such as fire, theft, natural disasters, or accidents. Insurers assess perils to determine what risks they will underwrite and what specific coverage they will provide in a policy. Understanding perils is essential for policyholders since it impacts what is covered under their insurance contracts. For example, if a homeowner's policy covers fire as a peril, then losses due to fire damage would be compensated under that policy.

Other options, while relevant to the insurance field, do not capture the definition of peril accurately. For instance, insurance fraud refers to deliberate deception to gain an illegal advantage, market trends pertain to changes in the financial marketplace that can affect insurance pricing or availability, and policy limits denote the maximum amount an insurer will pay for a covered loss. These concepts are crucial in the context of insurance, but they do not define what a peril is.