The potential for loss is also known as what?

• A. Peril
• B. Risk
• C. Hazard
• D. Transference

Answer: (B)

Risk is the possibility of loss—the chance that a loss will occur and how large it could be. This fits "potential for loss" because it captures both the likelihood and the potential magnitude of a loss. A peril is the actual cause of loss (like a fire or theft). A hazard is a condition that increases the likelihood or severity of a loss (such as faulty wiring or wet roads). Transference is moving the risk to another party, such as buying insurance. So the term that best matches the idea of “potential for loss” is risk.