How is risk defined in insurance terminology?

In insurance terminology, risk is defined as the chance or uncertainty of loss. This definition captures the essence of what insurance is designed to address. Insurance operates on the principle of managing uncertainty, where the focus is on potential negative events that might result in financial loss. By pooling resources from many policyholders, insurance companies can offer protection against these uncertainties, thus mitigating the individual financial impact of losses that may occur.

The other options do not accurately reflect the nature of risk in insurance. The possibility of gain, while relevant in investment contexts, does not pertain to the concept of risk in insurance. Similarly, uncertainty regarding profit suggests a focus on financial gains rather than losses, which is contrary to the purpose of insurance. Guaranteed outcomes of investments generally refer to situations with predictable results, which contrasts sharply with the inherent uncertainty involved in risk. Thus, the characterization of risk as the chance or uncertainty of loss is crucial for understanding how insurance functions and why it exists.