Insurable risks are pure risks.

Insurable risks are pure risks.

• A. True
• B. False
• C. Both
• D. Neither

Answer: (A)

The main idea is the difference between pure risk and speculative risk, and why insurance is built around pure risk. A pure risk is one where the only possible outcomes are loss or no loss; there’s no opportunity for a gain. Insurance works by transferring that uncertain loss from the insured to the insurer and compensating for the loss if it happens, which is why insurable risks are those pure risks. Speculative risks, on the other hand, involve a chance of both loss and gain (like investing, starting a new business, or gambling). Insurance does not cover these because their outcomes aren’t limited to loss and are harder to indemnify or price fairly. So the statement is true: insurable risks are pure risks. (Note that some pure risks may still be uninsurable due to other factors such as extreme probabilities or exclusions, but the core relationship holds.)

The main idea is the difference between pure risk and speculative risk, and why insurance is built around pure risk. A pure risk is one where the only possible outcomes are loss or no loss; there’s no opportunity for a gain. Insurance works by transferring that uncertain loss from the insured to the insurer and compensating for the loss if it happens, which is why insurable risks are those pure risks. Speculative risks, on the other hand, involve a chance of both loss and gain (like investing, starting a new business, or gambling). Insurance does not cover these because their outcomes aren’t limited to loss and are harder to indemnify or price fairly. So the statement is true: insurable risks are pure risks. (Note that some pure risks may still be uninsurable due to other factors such as extreme probabilities or exclusions, but the core relationship holds.)