In insurance terminology, pure risks are those that are insurable.

In insurance terminology, pure risks are those that are insurable.

• A. True
• B. False
• C. Not always
• D. Rarely

Answer: (A)

Pure risks are the types of risks insurance is designed to cover because they involve only the possibility of loss or no loss, with no opportunity for gain. This makes it possible to pool many similar risks and estimate expected losses, so insurers can price premiums to cover claims and expenses. That combination of predictable loss potential and no incentive for the insured to profit from the event is what makes such risks insurable. While speculative risks (where there could be a gain as well as a loss) are not insurable in the traditional sense, pure risks fit the underwriting model that supports insurance coverage.

Pure risks are the types of risks insurance is designed to cover because they involve only the possibility of loss or no loss, with no opportunity for gain. This makes it possible to pool many similar risks and estimate expected losses, so insurers can price premiums to cover claims and expenses. That combination of predictable loss potential and no incentive for the insured to profit from the event is what makes such risks insurable. While speculative risks (where there could be a gain as well as a loss) are not insurable in the traditional sense, pure risks fit the underwriting model that supports insurance coverage.