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3 ways to assume risk

Insureds transfer risk in the event something catastrophic may occur, but they still assume some of the cost.

By Christine G. Barlow | Updated on December 04, 2017

As we all know, insurance is a transfer of risk to another party. The risk is transferred most times because of financial considerations; the insured either cannot afford or does not want to take her chances that something catastrophic might happen, so she obtains an insurance policy in order to transfer the risk to a third party, the insurance carrier. There are a number of ways risk can be assumed.

The first is the deductible. A standard feature of any insurance policy, the deductible is selected by the insured and allows him to reduce his premium somewhat by agreeing to pay for part of any losses up front. When an insured selects a higher deductible, he is assuming part of the risk that he feels he can sustain on his own. Commercial insureds will use larger deductibles because they are larger operations and have more cash flow than your average personal insured.

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