Match each proposed risk scenario with the primary element of an insurable risk that it violates.
- An entrepreneur wants a policy to protect against the potential financial failure of a newly launched tech startup.The risk must involve pure loss, not speculative gain
- A parent requests a policy covering the subjective emotional distress of losing a child's favorite stuffed animal.The loss must be definite and measurable in financial terms
- A homeowner seeks coverage against the expected gradual fading of exterior paint over twenty years.The loss must be accidental and due to chance
- An insurer is asked to write earthquake coverage for every single commercial building located directly on a major fault line in one city.The loss must not be catastrophic to the insurer
Answer
The startup represents speculative risk; the sentimental item lacks measurable financial value; the fading paint is an expected inevitability rather than an accident; and the concentrated earthquake exposure threatens catastrophic loss for the insurer.
Each scenario violates one fundamental requirement for insurability: speculative intent, subjective valuation, inevitable deterioration, and catastrophic geographical concentration, respectively.
Step-by-Step Solution
Key Concept
Elements of Insurable Risk