Transfer of Risk
Definition - What does Transfer of Risk mean?
Transfer of risk, in the context of insurance, refers to the underlying principle of insurance policies, which involves passing a specific risk detailed in the insurance contract from one party, the insured, to another party, the insurer, who takes on the risk for a fee known as a premium.
Insuranceopedia explains Transfer of Risk
For example, the purchase of an auto insurance policy transfers the risks of owning a vehicle to an insurance company. In the event of a collision or another damaging event, such as extreme weather, the latter pays out a sum to cover repair or replacement costs as specified in the policy.
Insurance companies might also buy reinsurance to transfer some of the risk they take on from their policyholders.
How Well Do You Know Your Life Insurance?
The more you know about life insurance, the better prepared you are to find the best coverage for you.
Whether you're just starting to look into life insurance coverage or you've carried a policy for years, there's always something to learn.