PFM Chapter 25

Deductible

The specified amount of a loss that you (the insured) will have to pay.

Economic Risk

A risk that may result in gain or loss because of changing economic conditions.

Indemnification

Putting the policyholder back in the same financial condition he or she was in before a loss occurred.

Insurable Interest

Any financial interest in life or property such that, if the life or property were lost or harmed, the insured would suffer financially.

Insurable Risk

A pure risk that is faced by a large number of people and for which the amount of the loss can be predicted.

Insurance

A method for spreading individual risk among a large group of people to make losses more affordable for all.

Liability Risk

The chance of loss that may occur when your errors or actions result in injuries to others or damages to their property.

Personal Risk

The chance of loss involving your income and standard of living.

Premium

The fee paid at regular intervals by the owner of an insurance policy.

Property Risk

The chance of loss or harm to personal or real property.

Pure Risk

A chance of loss with no chance for gain.

Risk Assessment

Understanding the types of risk you will face and their potential consequences.

Risk Assumption

Accepting the consequences of risk by self-insuring to absorb the loss.

Risk Avoidance

Lowering your chance of loss by not doing high-risk activities.

Risk Management

An organized strategy for controlling financial loss from pure risks and insurable risks.

Risk Reduction

Taking measures to lessen the frequency or severity of losses that might occur.

Risk Shifting

Transferring risk by buying insurance to cover potential losses.

Speculative Risk

A risk that may result in either gain or loss.