Which term describes a large reserve of money available to pay claims?

• A. Speculative Risk
• B. Pooling of Risk
• C. Peril
• D. Morale Hazard

Answer: (B)

The idea being tested is how insurance funds claims by spreading losses across many policyholders. When many people pay premiums into a common pool, those funds form a large reserve that can be used to pay claims as they arise. This sharing of losses, creating a common pool of money to cover claims, is called pooling of risk. It describes why insurers can reliably pay out claims even when individual policyholders experience losses.

This concept isn’t about risk that could go up or down in value (speculative risk), the specific event that causes a loss (peril), or a mindset that increases risk (morale hazard).