General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The reason insurance is built around pure risk rather than speculative risk is that pure risk:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A pure risk offers only the chance of loss or no loss - there is no possibility of gain. That makes it consistent with the fortuitous-loss requirement: the insured cannot profit from the arrangement. A speculative risk includes a chance of gain, which would allow the insured to benefit from the insured event and would create a moral hazard, so speculative risks are generally not insurable.
Why the other options are wrong
- B) A chance of profit is the mark of a speculative risk, which is generally uninsurable.
- C) Pure risks can arise with any kind of hazard; the category is about loss-gain possibilities, not the hazard type.
- D) Pure risks are precisely the risks insurers measure with the law of large numbers.
Memory hook
Pure risk = no way to win, only to lose or break even. That's what insurance prices.