General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
In insurance terminology, risk is best defined as:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Risk, in its insurance sense, is the uncertainty or chance of loss. It looks forward to a possibility that has not yet happened, and it is the element the law of large numbers lets insurers measure and price. Risk must be distinguished from loss, which is the actual financial consequence that has already occurred, from hazard, which is a condition that increases the likelihood of loss, and from peril, which is the actual cause of loss. Understanding this distinction is foundational for agents who work with accident and health coverage.
Why the other options are wrong
- B) The actual occurrence of a loss is simply a loss; risk exists as a possibility before and around that event, not as the event itself.
- C) A condition that increases the chance of loss is a hazard, which is a different concept from risk itself.
- D) The cause of a potential loss is a peril, such as fire, illness, or an accident, not the uncertainty of loss.
Memory hook
Risk is the question will it happen, not the answer to that question.