Insurance Terms Defined: Risk

Risk: the uncertainty about outcomes, some of which can be either negative or positive.

If you are simply trying to understand why insurance is necessary this is the most basic term that could help you do so.  Insurance, in its most basic terms, is the financial approach to handling risk and its possible effects.  The more financial risk you can transfer and share, the better off you will be.

For example, you believe that you will live for many years and you have a good job that will help your family prosper during your life.  If, however, something incredibly unfortunate should happen and you pass away, life insurance protects your family.  You always have the risk of dying, life insurance provides financial security.