An individual attempts to purchase a property insurance policy for a collection of personal childhood diaries. The applicant admits the diaries have no professional appraisal or market value but insists they are "emotionally priceless" and requests $50,000 in coverage in case they are destroyed in a fire. The insurance company denies the application. Based on the elements of an insurable risk, what is the primary reason this specific exposure is uninsurable?
- The economic value of the potential loss is not definite and objectively measurable.Answer
- BThe exposure represents a pure risk, whereas insurers require a speculative risk to issue a policy.
- CThe threat of fire in this scenario acts as a physical hazard rather than a covered peril.
- DThe applicant is engaging in risk retention rather than legally transferring the risk to the insurer.
Answer
The economic value of the potential loss is not definite and objectively measurable.
One of the fundamental elements of an insurable risk is that the loss must be definite and measurable in financial terms. Because the diaries hold only sentimental value and lack a documented market price, the insurer cannot objectively measure the economic extent of the loss to provide indemnification.
Step-by-Step Solution
Key Concept
Elements of Insurable Risk - Definite and Measurable