Property and Casualty Insurance Practice Exam

Which type of risk is insurable, involving only the possibility of loss?

1. Speculative risk

2. Pure risk

3. Controllable risk

4. Hazard risk

The correct answer is: Pure risk

The type of risk that is insurable and involves only the possibility of loss is pure risk. Pure risks are situations where there are only two potential outcomes: either a loss occurs or no loss occurs. This characteristic makes pure risk suitable for insurance coverage because insurance is designed to provide financial protection against losses rather than to profit from gains. In contrast, speculative risk involves both the possibility of gain and loss, making it uninsurable by traditional insurance standards. Examples of speculative risks include investments in stocks or real estate, where the outcome can result in profit or loss. Controllable risk refers to risks that can be managed or regulated by individuals or organizations, often through safety measures and loss prevention strategies, but it doesn't exclusively pertain to insurable risks. Hazard risk involves increased likelihood of loss due to specific hazard factors (such as environmental dangers or specific conditions), but this term does not specifically denote the insurability of the risk itself, as it may involve elements of both pure and speculative risks. Thus, the answer is explicitly linked to the nature of pure risk as being solely concerned with the potential for loss, making it the focus of insurance mechanisms.