Uninsurable Risk
What Does Uninsurable Risk Mean?
An uninsurable risk is a risk that insurance companies aren’t willing to take on. This could be because the chance of a loss is too likely. This is why people who are terminally ill can’t buy life insurance.
A risk could also be uninsurable because it’s too expensive for the insurance company to cover. Many homeowners’ insurance policies list flood damage as uninsurable. Since a flood would damage so many homes at the same time, covering all this damage would create too much of a loss for insurance companies.
Insuranceopedia Explains Uninsurable Risk
The idea behind insurance is that it spreads risk among a large group of people so they can protect against a large loss by making a small insurance payment. This only works if most of the group goes without a loss. Otherwise, the insurance company runs out of money. Uninsurable risks are the risks that would bring down an insurance pool so they can’t be taken on for regular coverage.
Insurance companies do sell high-risk coverage. People with an uninsurable risk might be able to buy some coverage this way, although the coverage will likely be limited and be more expensive. Also, the government covers other uninsurable risks like floods. The government sells flood insurance in high-risk areas because it knows insurance companies won’t.
