Insurance Term of the Day: Preferred Risk
The term preferred risk sounds kind of like an oxymoron, wouldnโt you say? How could anyone โpreferโ a risk?
Well, for insurance companies, the whole business revolves around the concept of risk. When you risk something, youโre doing something with the hopes that nothing will go wrong. Thatโs how insurance companies view you. You are a risk that they are taking on as their responsibility. The agreement you make via contract between you and your insurance carrier is basically saying that you will pay a specific amount in premium. In return, depending on the circumstances, the carrier is financially responsible for replacing your insured assets up to a certain limit (unless the asset is specifically excluded in the agreed contract.) This also applies to bodily injury and liability claims.
This is a huge risk for insurance because they never know when/if you will have a claim or just how costly it could be. For example, say youโre at fault in an auto accident in which you critically injured the other driver. The medical bills are maxed out at $75,000 that your insurance company is now responsible for paying (given that you have enough coverage.) Imagine how long youโd have to work to personally save up that much money and imagine how many things you could buy for that price. The insurance company loses a lot from just one claim like that. Again, how can there really be a โpreferred riskโ?
A preferred risk is a policyholder with an ideal background. Living in an area of light traffic and few traffic accidents reported, with a perfect driving record makes you a preferred risk. This is because the likelihood of you filing a claim is significantly less than someone in a high trafficked area with speeding tickets. Being a preferred risk typically means cheaper premiums.
Are YOU a preferred risk?
Do you have questions about your insurance? Find an insurance agent near you with our Agent Finder
Search All Blogs
Search All Blogs
Read More Insurance Blogs
Beyond the Funeral: 9 Reasons Why You Need More Life Insurance Than You Think
Life Insurance: Not Just for Buryin’! Unexpected Costs You Never Knew Were Covered
Life Insurance Myths Busted: Unveiling the Simple Truths Behind Financial Security
Considering life insurance but confused by the myths? We clear the air on common misconceptions and show you how to get simple, affordable coverage.
The Farewell Financial: Planning a Peaceful Goodbye
Beyond Goodbyes: A Guide to Navigating Funeral Costs and Life Insurance
Why Life Insurance Matters for Businesses
Death and the Business Owner: How Life Insurance Can Secure Your Legacy
Beyond the Grave: Burial Insurance vs. Life Insurance Explained
Don’t Be Buried by Confusion: Understanding Burial and Life Insurance
From Bronze Age to Boomers: How Life Expectancy Went From Meh to Magnificent
How Long Will You Live? A Look at Life Expectancy Throughout History (and Why You Might Need Life Insurance)
Beyond “My Beloved Spouse”: A Guide to Choosing Your Life Insurance Beneficiary
The Beneficiary Bunch: Understanding Your Options
Life on the Edge? How Your Hobbies Can Affect Your Life Insurance Rates
Beyond the Premium: Unveiling the Unexpected Links Between Hobbies and Life Insurance
Unveiling the Different Players (and Why We’re Your Guide!)
Insurance Companies: Not All Created Equal! Find Your Perfect Match with Our Help
Cracking the Code: Cash Value, Loan Value, Surrender Value – It’s All in the Life Insurance Policy!
Beyond the Death Benefit: Unlocking the Hidden Gems of Your Life Insurance Policy