A risk is the chance of loss. Some examples of risk include:
- Owning a house is a risk, since it could be damaged by fire or wind.
- Driving a car is a risk, since the driver could cause an accident, suffer injuries, or injure someone else and get sued.
A loss is a negative financial consequence of an unplanned event. For example:
- Henry’s car suffers $7,000 damage when he crashes his car into a tree, the $7,000 damage is a loss.
- Hector is hospitalized and has a $15,000 hospital bill.
People and businesses buy insurance to transfer the risk of having a loss to an insurance company.