General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which statement correctly explains why speculative risks are generally excluded from insurance coverage?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A speculative risk involves the possibility of gain or loss, such as gambling or starting a business. Insurance operates on the indemnity principle: the insured should be restored to the pre-loss financial position, not made better off. If a loss carried a chance of gain, the insured could profit from the event, which would encourage risk-taking and undermine the entire insurance mechanism. Insurance therefore handles pure risks, where the only outcomes are loss or no loss.
Why the other options are wrong
- B) Many speculative risks are statistically measurable; the reason for exclusion is the chance of gain, not measurability.
- C) Private insurers do not generally cover speculative risk; it is excluded as a matter of insurance principle, not assigned to the government.
- D) Speculative risks can arise from ordinary market decisions and are not inherently intentional; the presence of a possible gain is the disqualifying feature.
Memory hook
If you could win, indemnity would lose its meaning. No profit allowed on a loss.