General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which statement correctly describes risk from an insurance perspective?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Insurance rests on the insight that individual losses are random and unpredictable, but losses across a large group of similar exposures become statistically predictable. The law of large numbers lets insurers forecast total claims and set premiums accordingly. Insurance transfers the financial burden of risk; it does not make an individual's loss predictable, nor does it eliminate the chance that the individual suffers a loss.
Why the other options are wrong
- B) No one can predict whether a particular individual will suffer a loss; only group results are predictable.
- C) Insurance transfers and spreads risk; it does not eliminate the possibility of loss for the insured.
- D) Risk concerns the possibility of future loss, not losses that have already occurred.
Memory hook
One person = a coin toss. A million people = a schedule. Group prediction is the engine.