General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
In insurance terminology, risk is best defined as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Risk is the uncertainty regarding a possible financial loss — the chance that an unplanned, unfavorable event will occur. It exists before any loss happens and its degree can vary from high to low. Insurance is a mechanism for dealing with this uncertainty by pooling similar exposures and applying the law of large numbers to predict group losses, not by eliminating the possibility of loss for any single insured.
Why the other options are wrong
- B) An actual loss that has occurred is a completed event, not risk; risk refers to the possibility of a future loss.
- C) No insurer can guarantee that a loss will not occur; insurance only pays when losses do occur.
- D) The cause of a loss is a peril, not risk; risk is the uncertainty about whether that peril will strike.
Memory hook
Risk = the 'maybe' of loss. Peril = what can cause it. Loss = what actually happens.