Requirements of Insurable Risk

Definition - What does Requirements of Insurable Risk mean?

The requirements of insurance risk are the elements that an insurance company considers before crafting and selling a policy. Knowing these elements safeguard the company from suffering a catastrophic financial loss or being taken advantage of by the insured.

Insuranceopedia explains Requirements of Insurable Risk

An insurance company will only allow a policyholder to pass a loss on to them only if the company is well aware of the consequences involved. It is aware of the following: that a loss should happen by chance and not as the result of a premeditated action, that the loss is predictable and natural (such as death), that the loss is measurable (how much amount of money to cover is determined in advance), that the loss is not catastrophic (and will not make the company insolvent), and that the insurance payment is justifiable if compared to the value of the loss.

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