Legal Definitions - basic-form policy

A basic-form policy is a type of insurance policy that provides coverage only for a specific, limited list of risks or "perils" that are explicitly named and described within the policy document. If a particular risk or event is not listed, it is not covered by the policy. This type of policy offers the most fundamental level of protection, contrasting with broader policies that might cover a wider range of risks or all risks except those specifically excluded.

• Example 1: Homeowner's Insurance

  A homeowner purchases the most affordable property insurance available, which is a basic-form policy. This policy explicitly states it covers damage resulting from "fire, lightning, and explosion." If a fire damages the home, the policy will pay for repairs. However, if a pipe bursts and causes significant water damage, or if the home is burglarized, the policy will not cover these events because water damage and theft are not among the *named perils* specifically listed in this basic policy. This illustrates how the coverage is restricted to only the few, fundamental risks identified.

• Example 2: Small Business Property Insurance

  A small retail shop owner, operating on a tight budget, opts for a basic-form commercial property insurance policy to protect their inventory and building. The policy document clearly lists "damage from windstorm, hail, and vandalism" as the covered perils. If a severe hailstorm damages the shop's roof, the policy will cover the cost of repairs. However, if a flood from a nearby overflowing river damages the inventory, the policy will not provide coverage because flood damage is not a *named peril* in this specific basic policy. This highlights the selective and limited nature of the coverage provided.

• Example 3: Travel Insurance

  A traveler buys a very simple travel insurance plan for an international trip. The policy explicitly states it covers "emergency medical expenses incurred abroad" and "accidental death or dismemberment." If the traveler falls ill and requires hospitalization during their trip, the medical expenses are covered. However, if their luggage is lost by the airline or they need to cancel their trip due to a non-medical family emergency, these events are not covered because lost luggage or trip cancellation are not among the *named perils* in this basic policy. This demonstrates how the policy's scope is restricted to a few fundamental, specified risks.