General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
In insurance terminology, the definition of risk is best expressed as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Risk is defined as the uncertainty or chance of financial loss. It is not the loss itself, not the event that causes it, and not a condition that makes a loss more likely. Insurers exist because risk, meaning uncertainty about whether and when a loss will occur, can be measured in the aggregate through the law of large numbers and transferred for a premium. Every insurance transaction begins with this concept: the insured transfers the financial consequences of an uncertain event, and the insurer prices that uncertainty for a large group of similar exposures.
Why the other options are wrong
- B) The loss itself is an event that has already occurred; risk is the pre-loss uncertainty of a future loss, not the loss event.
- C) A condition that increases the chance of loss is a hazard, not risk. Hazards are factors that make risk greater.
- D) The dollar amount of damage is a post-loss measurement of severity, not the pre-loss concept of risk.
Memory hook
Risk = tomorrow's question mark, not today's damage. Risk is the uncertainty, loss is the event.