Hawaii Insurance License Practice Exam

What term describes the likelihood that an event will cause a financial loss?

1. Risk

2. Liability

3. Claim

4. Hazard

The correct answer is: Risk

The term that describes the likelihood that an event will cause a financial loss is "risk." In the context of insurance, risk refers to the possibility of an event occurring that could result in a financial impact on individuals or businesses. Insurers assess risk to determine the premiums they charge and the coverage they offer, as managing risk is central to the functioning of insurance. Understanding risk is essential for both insurance providers and policyholders, as it influences everything from underwriting decisions to the types of products available in the market. The evaluation of risk includes factors like the probability of loss and the potential severity of the loss should an event occur, making it a foundational concept in the insurance industry.