Uninsurable risk is any type of situation or event that is considered to be outside the scope of the level of risk that an insurance provider is willing to assume in order to provide coverage for a client. This type of risk is present with just about any type of insurance plan, including health coverage and even different types of residential and property insurance. Typically, the type of hazard under consideration and the likelihood of that hazard occurring play a significant role in determining what type of events are considered insurable and which ones present too great a risk for the insurer.
One of the more common examples of an uninsurable risk has to do with property insurance, such as home insurance. Many insurers will assess the potential for certain types of events to take place and set rates accordingly. This means that some events with a higher likelihood of occurring at some time during the life of the coverage, but not at a frequency considered unacceptable to the insurance company, may be covered if the insured party is willing to pay a higher premium. Other events may be deemed likely to occur with a frequency that presents considerable risk to the insurance provider, leading to those events not being covered at any rate or premium. Those events will constitute uninsurable risk for that provider.
The same general concept applies when it comes to health insurance. An applicant who has a terminal illness will be considered an uninsurable risk by the provider, simply because that applicant will not recover from that condition and will likely require a great deal of care over the remainder of his or her life. Since the expense of that healthcare is likely to exceed any amount of premiums paid for the coverage, the provider will be likely to reject the application, noting that the risk to the financial well-being of the company and its ability to honor obligations to other clients is too great to approve the application.
It is important to note that just because a certain condition is deemed as uninsurable risk by one provider, that does not mean that the consumer cannot obtain some sort of coverage through a different provider. There are insurance companies that specialize in providing what are known as high-risk insurance plans to individuals and families who have been rejected by other providers. Some of those high-risk plans are subsidized by local or state agencies, and will usually provide only limited coverage, either in terms of the duration of the coverage or the amount that the plan will pay out on an annual basis.
