Risk

What Does Risk Mean?

Risk refers to the probability that a specific loss will occur. It is highly relevant for insurance companies, as it influences whether they will need to spend money to satisfy a claim. It is also significant for policyholders because those who present a higher risk may be required to pay higher premiums.

Insuranceopedia Explains Risk

Risk can significantly impact premiums. For example, a young, healthy person purchasing life insurance is considered a much lower risk than an elderly, sick individual. This is because the likelihood of death for a young, healthy person is much lower. In contrast, the elderly, sick individual is perceived as having a higher chance of death, resulting in a much greater risk for the insurance company to pay out a claim. If a person’s risk is deemed too high, they may even be denied insurance coverage.