Who assumes the risk in an insurance policy?

The insurer assumes the risk in an insurance policy. This means that the insurance company agrees to pay for certain losses or damages that the insured party may encounter, as specified in the policy documents. By doing so, the insurer takes on the financial burden that may arise from claims made by policyholders, in exchange for the premiums paid by the policyholders.

This system allows individuals and businesses to protect themselves against significant financial losses. For instance, if a person has homeowner's insurance and suffers damage from a fire, it is the insurer who compensates the policyholder for their loss, based on the terms of the policy. The foundation of insurance rests on risk pooling, where many individuals pay premiums, and the insurer uses these funds to cover the losses of a few.

The other roles in the context of insurance, such as debtors (who may need insurance but do not assume risk), brokers (who facilitate the sale of insurance but do not take on risk), and beneficiaries (who receive benefits from a policy but are not responsible for covering risks), do not assume the risk inherent to the insurance policy.