Definition Of Risk
Previously we have come across the term ‘Risk’ several times in this module. But let us understand: What is the actual meaning of risk in context to life insurance?
The word ‘risk’ can be used in several different contexts. In insurance, risk is applied to certain assets that can be insured, such as a human life, a house, a car, etc.
There is no single definition of risk because of the different contexts in which it can be used. Here are some of the of risk:
- Risk is the chance of damage or loss.
- Risk is doubt concerning the outcome of a situation.
- Risk is something or someone considered to be a potential hazard.
In life insurance the word ‘risk’ is used to describe the possibility of an unfavourable event occurring, for example untimely death or an unforeseen disability.
Insurance provides protection from the following risks -
- Living too long after retirement; and
- Premature death.
Insurance cannot prevent the occurrence of these risks, but it can definitely reduce their impact when they occur. Life insurance mainly deals with two risks – premature death and living too long. The other risks relating to human life are mostly covered under non-life insurance. However, life insurance companies offer additional beneﬁts or riders along with life insurance plans to cover the following risks – death or disability due to accidents, illness and unemployment.
(Source : IRDAI study material for IC-33 exam)