Which term describes the chance of either loss or gain and is not insurable?

• A. Speculative Risk
• B. Pure Risk
• C. Peril
• D. Exposure

Answer: (A)

Speculative risk describes situations where the outcome can be a loss or a gain (or neither), such as investing in stocks or starting a new business. Because insurance transfers risk only when the potential outcome is a pure loss or no loss, speculative risk isn’t insurable; the possibility of a gain means the policy cannot be priced and indemnified in the same way. Pure risk, on the other hand, involves only loss or no loss and is generally insurable. A peril is the specific cause of a loss (like fire or theft), and exposure is the condition that makes loss possible.