Insurance Term of the Day: Preferred Risk

The term preferred risk sounds kind of like an oxymoron, wouldn’t you say? How could anyone “prefer” a risk?

Well, for insurance companies, the whole business revolves around the concept of risk. When you risk something, you’re doing something with the hopes that nothing will go wrong. That’s 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 you’re 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 you’d 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 “preferred risk”?

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?

By: KayLynn P.


Do you have questions about your insurance? Find an insurance agent near you with our Agent Finder

Buzz Your
Insurance Agent

Search for a local agent with our agent finder map.

Agent Finder

Search All Blogs

Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt

Buzz Your
Insurance Agent

Search for a local agent with our agent finder map.

Agent Finder

Want to learn more about
our blog writer?

Read more about KayLynn's background.

Search All Blogs

Search
Generic filters
Exact matches only
Search in title
Search in content
Search in excerpt

Unusual Questions About Life Insurance

The Answers to Some Off-the-Wall Questions

How Do You File a Life Insurance Claim?

What You’ll Need and What to Do To File a Claim

Situations When You Should Change Your Life Insurance Beneficiary

It Can Be Easy to Forget to Change a Life Insurance Beneficiary

Let’s Talk About the MINIMUM Amount of Life Insurance You Should Carry

Do You Need a Million Dollar-Plus Life Insurance Policy?

Keeping Up With Life’s Clutter

If You are not Careful, Clutter Can Be Overwhelming

Life insurance; One Step at a Time

You Don’t Need a Big Budget To Get Your Life Insurance Program Started

Small Choices That Can Make Big Differences in Your Health

Don’t Let a Big Decision Stop You. Make Some Small Ones Instead.

Creating a Family Timeline

Building a family timeline is fun and interesting. Start with birthdays, weddings, graduations etc. and build it out from there!

Activities for the Family to Keep Everyone Fit

Share the Motivation for a Healthier Life with Your Family

Pre-Planning Doesn’t Require Pre-Paying

You Don’t Have to Wait Until You Are Financially Ready to Pre-Plan Final Services