What is Risk Insurance?
Risk insurance refers to the risk or chance of occurrence of something which is harmful or unexpected that might include loss or damage of the valuable assets of the person or injury or death of the person where the insurers assess these risks and on the basis of which, work out the premium that the policyholder needs to pay.
- Risk Insurance shall involve in assessing the price to be paid to Insurance policyholders who have suffered from the loss that occurred to them which is covered by the policy. It involves various types of risks such as theft, loss or damage of property or also may involve someone being injured; there is a chance that something unexpected or harmful may happen at any point in time.
- It evolves in calculating the pay of the financial value for the damages that might occur to the insured property or item that might be lost, injured or destroyed accidentally or often occur to happen. It also states how much it would cost to replace or repair such an insured item to cover the loss suffered by the policyholder in case of such damage. Insurers shall calculate claims and evaluate their risks.
The following are the different types of risk in insurance:
#1 – Pure Risk
- Pure risk refers to the situation where it is certain that the outcome will lead to loss of the person only or maximum it could lead to the situation of the break-even to the person, but it can never cause profit to the person. The example of the pure risk includes the possibility of damage to the house due to any of the natural calamity.
- In case any natural calamity occurs then either it will damage the house of the person and its household items or it will not have an effect on the person’s house and household items but this natural calamity will not give any profit or gain to the person. So, this will fall under the pure risk and these risks are insurable.
#2 – Speculative Risk
- Speculative risk refers to the situation where the direction of the outcome is not certain i.e., it could lead to a situation of loss, profit or break-even to the person. These risks are generally not insurable. An example of the speculative risk includes the purchase of the shares of a company by a person.
- Now, the prices of the shares can go in any direction and a person can make either loss, profit or no loss no profit at the time of the sale of those shares. So, this will fall under the Speculative risk.
#3 – Financial Risk
Financial risk refers to the risk in which the outcome of the event is measurable in terms of the money i.e., any loss that could occur due to the risk can be measured by the concerned person in monetary value. An example of the financial risk includes a loss to the goods in the warehouse of the company due to the fire. These risks are insurable and are generally the main subjects of the insurance.
#4 – Non-Financial Risk
Non-Financial risk refers to the risk in which the outcome of the event is not measurable in terms of the money i.e., any loss that could occur due to the risk cannot be measured by the concerned person in the monetary value. The example of the non-financial risk includes the risk of poor selection of the brand while purchasing mobile phones. These risks are uninsurable since they cannot be measured.
#5 – Particular Risk
Particular risk refers to the risk which arises mainly because of the actions or the interventions of the individual or the group of some individuals. So, the origin of the particular risk by individual-level and impact of the same is felt at a localized level. An example of a particular risk includes an accident on the bus. These risks are insurable and are generally the main subjects of the insurance.
#6 – Fundamental Risk
Fundamental risk refers to the risk which arises due to the causes which are not under the control of any person. So, it can be said that the fundamental risk is impersonal in its origin as well as the consequences. The impact of these risks is essentially on the group i.e., it affects the large population. The example of the fundamental risk includes risks on the group by events such as natural calamity, economic slowdown, etc. These risks are insurable.
#7 – Static Risk
Static risk refers to the risk which remains constant over the time period and is generally not affected by the business environment. These risks arise from human mistakes or actions of nature. An example of the static risk includes the embezzlement of funds in a company by one of its employees. They are generally easily insurable as they are easy to measure.
#8 – Dynamic Risk
Dynamic risk refers to the risk which arises when there are any changes in the economy. These risks are generally not easy to predict. These changes might bring financial losses to the members of the economy. The example of the dynamic risk includes the changes in the income of the persons in an economy, their tastes, and preferences, etc. They are generally not easily insurable.
Concept of Risk Insurance
The term of risks in Insurance says that how the insurers evaluate their risks in issuing insurance policies to the policyholders on the loss that may occur due to loss, theft, or damage to the property or even on someone is injured. This concept also says the types of those risks are involved in the issuance of Insurance. It also helps the insurers to evaluate the risk and calculate the claims that can be paid in the future at any point in time if the damage or loss occurs.
Thus the risk insurance or the risks in the insurance are the chance that the unexpected events will occur which could cause the loss to the person or its property. Most of the risks are nowadays insurable by insurance companies. These companies calculate the probability of the occurrence of the events and their impact and then calculate the premium accordingly.
This has been a guide to What is Risk Insurance & its Definition. Here we discuss the types of risk insurance and its concepts. You can learn more about from the following articles –