Insurable Risk
A pure risk that meets the insurer's requirements: it must be due to chance, definite and measurable, predictable, not catastrophic to the insurer, and the exposure must be part of a large homogeneous pool.
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Practice This Concept
A person with a terminal illness buys a life insurance policy planning to die soon and have the family collect the death benefit. Why is this NOT an ideally insurable risk scenario?
The loss is not fortuitous — the event is expected and effectively certain — An ideally insurable risk must be fortuitous — the loss must be accidental and beyond the insured's control, not planned or certain. Buying coverage after learning of a terminal illness to guarantee an imminent payout is a classic adverse selection setup in which the event is effectively certain, which defeats the law of large numbers and the requirement that losses be random. Insurers underwrite precisely to detect such situations before they enter the pool.
National insurance concept
A person already diagnosed with a terminal condition applies for a new health policy expecting to collect on the known illness. Which requirement of an ideally insurable risk is most clearly violated?
The loss must be fortuitous — accidental and beyond the applicant's control — An insurable loss must be fortuitous: accidental, unintentional, and beyond the insured's control. A loss that is certain to occur — such as a known terminal illness at application — is not fortuitous, so the arrangement would be a pre-funded payout rather than insurance. This fortuitousness requirement is the core protection against adverse selection and guaranteed-loss abuse.
National insurance concept
- General InsuranceA person with a terminal illness buys a life insurance policy planning to die soon and …
- General InsuranceA person already diagnosed with a terminal condition applies for a new health policy ex…
- General InsuranceA risk cannot be ideally insured if the premium that would have to be charged is so hig…
- General InsuranceWhich of the following involves insurable risk rather than a certain, scheduled expense?
- General InsuranceOne characteristic of an ideally insurable risk is that:
- General InsuranceAll of the following are characteristics of an ideally insurable risk EXCEPT:
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