In terms of insurance, how is 'risk' commonly defined?

In the context of insurance, 'risk' is commonly defined as the probability of loss occurring. This definition captures the inherent uncertainty associated with potential adverse events that may result in financial loss. Insurance operates on the principle of risk management, where the insurer calculates the likelihood of certain risks and their potential impacts. Understanding the probability of loss helps insurers determine the appropriate premium rates to charge, as well as how to develop policies that adequately cover those risks.

The total value of insured assets relates more to the scope of coverage rather than the nature of risk itself. The amount of the premium paid pertains to the cost of insurance coverage, which is influenced by the assessed risks but does not encapsulate what risk is. Similarly, the extent of coverage provided by a policy describes the protection afforded to the policyholder rather than defining the risk involved. Therefore, the correct answer aligns closely with the fundamental concepts of risk assessment in insurance.