Transfer Of Risk

AAA

DEFINITION of 'Transfer Of Risk'

The underlying tenet behind insurance transactions. The purpose of this action is to take a specific risk, which is detailed in the insurance contract, and pass it from one party who does not wish to have this risk (the insured) to a party who is willing to take on the risk for a fee, or premium (the insurer).

INVESTOPEDIA EXPLAINS 'Transfer Of Risk'

For example, whenever someone purchases home insurance, he or she is essentially paying an insurance company to take the risk involved with owning a home. In the event that something does happen to the house, such as property damage from a fire or natural disaster, the insurance company will be responsible for dealing with any resulting consequences.

In today's financial marketplace, insurance instruments have grown more and more intricate and complex, but the transfer of risk is the one requirement that is always met in any insurance contract.

RELATED TERMS
  1. Hazard Insurance

    Insurance that protects a property owner against damage caused ...
  2. Premium

    1. The total cost of an option. 2. The difference between the ...
  3. Risk

    The chance that an investment's actual return will be different ...
  4. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Pure Risk

    A category of risk in which loss is the only possible outcome; ...
  6. Named Perils Insurance Policy

    A home insurance policy that only provides coverage on losses ...
Related Articles
  1. Choosing The Best Disability Insurance ...
    Options & Futures

    Choosing The Best Disability Insurance ...

  2. Top Tips For Cheaper, Better Car Insurance
    Options & Futures

    Top Tips For Cheaper, Better Car Insurance

  3. I know there is a form of deposit insurance ...
    Home & Auto

    I know there is a form of deposit insurance ...

  4. 4 Psychological Traps That Are Killing ...
    Active Trading Fundamentals

    4 Psychological Traps That Are Killing ...

comments powered by Disqus
Hot Definitions
  1. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  2. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  3. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center