What does assumption of risk mean in insurance?

Assumption of risk in insurance refers to the understanding that certain risks may not be covered under a particular policy. This concept is vital for both insurers and policyholders, as it defines the extent of coverage and the responsibility of the insured party. In many cases, individuals are aware that engaging in specific activities—such as extreme sports or hazardous occupations—can lead to greater risk, which may not be covered by standard insurance policies. This acknowledgment forms a key part of the contract between the insurer and the insured, clarifying that particular risks are assumed by the individual, instead of being transferred to the insurer.

This concept ensures that individuals take personal responsibility for known risks rather than expecting insurance coverage for activities that entail higher probabilities of loss or damage. Understanding assumption of risk allows consumers to make informed choices about the policies they purchase and the associated risks involved.