What is considered a pure risk in insurance?

A pure risk in insurance refers to a situation that can only result in a loss or injury, with no possibility of gain. This type of risk is insurable, and examples include risks such as fire, theft, or accidents that result in bodily harm. In pure risk situations, the outcome is either a loss or no loss at all, meaning there is simply an exposure to a negative event without the element of profit.

Investment risk, business risk, and market risk fall under different categories. Investment risk involves the uncertainty of returns on investments, which may include both gains and losses. Business risk encompasses the potential failure or loss associated with operating a business, which may involve various uncertainties that could lead to financial gains or losses. Market risk pertains to the risk of losses in investments due to factors that affect the entire financial market.

Focusing on pure risk illustrates its unique characteristics, as it is specifically tied to potential losses without the opportunity for profit, making it fundamentally different from the other types of risks listed.