Insurable risks are losses insurance companies are willing to cover. Insurance companies reserve the right to determine what goes under coverage should a policyholder incur some losses while the policy is in force.
Therefore, before an individual or a business opts for coverage, it is important to understand insurable risks. This post will explain what the term means before you buy insurance policies.
What is insurable risk?
At the onset of purchasing a policy, whether for your personal use or your business, the insurance company informs you what can go in for coverage and the premium you must pay for them to be covered.
Those losses that the companies agree to pay for are called insurable risks. These losses may take different forms depending on the type of insurance policy you have. So, it is crucial to understand that insurers will never agree to cover every part of your life or business.
What is an example of insurable risks?
Let us say you just bought a property in a safe area, but it was attacked by robbers, and some items were stolen with broken windows. These issues are risks that are insurable with the proper coverage.
It is not a regular occurrence that is likely to happen frequently, so a good homeowners insurance policy can cover the damage without much hassle if you pay your premiums regularly.
The same goes for car insurance. For example, you purchase a car and insure it against accidents. Perhaps you are riding your car and get into an accident, and your insurer picks up the tab to repair your vehicle and take care of anybody involved in the accident.
This becomes possible because your driving skills were evaluated, and you were considered a good driver. Such accidents will be covered during your car insurance purchase.
However, most car insurance companies will not cover the risk of an accident if someone not under the coverage is driving the car. So, just as we have insurable risks, we also have uninsurable risks.
Also Read: Uninsurable risks – Definition and types
What are the most insurable risks?
Many things can be covered, especially when they are in accordance with the insurer’s policy or agreement. Some insurable risks, including health, fire, and life risks, are more popular than others.
Factors that determine insurable risks
With policies everywhere, there are characteristics of these risks and ways to know what an insurer is willing to cover so that it will not put them in a tight corner. Now, let us look at the features below.
- The loss must not be intentional. It must be purely an accident. Any loss that is likely to happen may not be insured.
- It must be countable and calculated. Huge and uncountable losses like a pandemic, probably affecting an entire country, can not be considered insurable risks.
- The premium must be easily payable. You, as the policyholder, must be able to comfortably pay it.
- The damage must be within coverable limits. Insurance companies have a limit on what is covered in their standard policy. Going outside that can lead to asking for a high-risk coverage.
