Pure risk is generally considered to be what?

• A. Not insurable
• B. Insurable
• C. Sometimes insurable
• D. Always speculative

Answer: (B)

Pure risk is risk that involves only a chance of loss or no loss, with no opportunity for financial gain. Insurance is designed to cover such risks because the loss is uncertain, random, and unplanned, and it can be pooled across many insureds to set premiums. This is why pure risks are generally insurable. By contrast, speculative risk involves potential for both loss and gain (like investing or starting a business) and is not insurable in the traditional sense. Some pure risks may be uninsurable if they are catastrophic to many policyholders or cannot be measured reliably, but the typical health insurance focus—sickness or injury—illustrates a pure risk that is insurable.