Which qualification of insurable risk requires that both the insurer and the insured must agree on the terms?

The qualification of insurable risk that requires both the insurer and the insured to agree on the terms is definable risk. This concept emphasizes that for an insurance contract to be valid, the risks being insured must be clearly defined with terms that both parties understand and accept. This ensures there is mutual agreement on what is covered under the policy, the conditions that apply, and what liabilities or losses will be compensated.

Definable risk allows for a clear understanding of the nature of the risk, which is foundational in establishing a fair insurance policy. It safeguards both the insurer’s financial interests and the insured’s protections. When there is clarity in the terms of the insurable risk, it reduces potential disputes and ensures that expectations are aligned between both parties.

In contrast, the other qualifications such as adequate premiums, exclusions, and substantial losses focus on different aspects of the insurance agreement but do not inherently require mutual agreement on terms. Adequate premiums ensure that the risk is priced appropriately, exclusions outline specific situations not covered by the policy, and substantial losses pertain to the magnitude of loss that is eligible for coverage, none of which necessitate the same level of agreement on the terms of the risk as definable risk does.