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. The example of an older, sicker applicant also explains why the best life insurance companies for seniors are often different from those that suit younger buyers, since insurers price and underwrite each age group based on its risk profile. If a person’s risk is deemed too high, they may even be denied insurance coverage. When risk on a home is too high for standard carriers to write a policy, owners often have to look at high-risk homeowners insurance, which is written by specialty insurers at higher premiums.