What is meant by excluded peril in insurance?

An excluded peril in insurance refers to specific risks or events that are not covered by an insurance policy. When a peril is explicitly excluded, it means that if that particular risk leads to a loss, the insurer will not provide compensation for it. This understanding is crucial for policyholders since they need to be aware of what events are not covered to avoid unexpected financial burdens following an incident.

For instance, in many standard homeowners' policies, certain types of damage, such as flooding or earthquakes, might be listed as excluded perils. If a policyholder suffers damage from a flood, the insurer is not liable to pay for those damages since flooding is an excluded peril in that policy.

The other options do not accurately capture the essence of what an excluded peril entails in the context of insurance. Covered risks do not necessarily have a direct connection to exclusions, nor do they imply lower costs or higher premiums, which often pertain to different aspects of insurance underwriting and risk assessment. Liability under all circumstances also does not correlate with excluded perils, as it relates more to the scope of coverage rather than what is specifically omitted from it.