What does "assumed risk" mean in insurance terminology?

In insurance terminology, "assumed risk" refers to the risk that a policyholder accepts through deductibles or exclusions. This concept highlights the portion of risk that the policyholder agrees to bear, thereby sharing the burden of potential losses with the insurer. By accepting a deductible, for instance, the policyholder agrees to cover a specified amount of any loss before the insurance coverage kicks in, which effectively lowers the insurer’s financial responsibility in a claim situation.

This understanding emphasizes the collaborative nature of risk management between the insurer and the insured, where certain risks are retained by the policyholder. This approach can help in reducing premium costs since the insurer is not liable for the portion of risk that the policyholder has chosen to assume.

The other options reference scenarios that do not accurately encapsulate the concept of assumed risk, thus reinforcing that the true meaning of "assumed risk" aligns with the acceptance of risk by the policyholder through deductibles and exclusions.