General Insurance Level 1 Practice Exam

The term that describes 'the chance of financial loss' is risk. In insurance terminology, risk refers to the uncertainty regarding financial loss associated with specific events or conditions. For instance, the risk of an automobile accident involves the possibility of incurring repair costs, medical expenses, or liability claims. Insurance is fundamentally about managing and mitigating risks by pooling resources to cover the financial impact when those risks materialize.

Liability pertains to the responsibility of a party for damages or injuries inflicted upon another, rather than the chance of loss itself. Peril describes specific risks or causes of loss, such as fire or theft, but does not capture the broader concept of uncertainty or potential financial loss. Coverage relates to the extent of protection provided by an insurance policy but is not a measure of potential financial loss. Understanding these distinctions reinforces the importance of the concept of risk in the context of insurance.