Which term refers to risk that involves the chance of loss only and is insurable?

• A. Adverse selection
• B. Insurance
• C. Pure Risk
• D. Speculative Risk

Answer: (C)

Pure risk describes events that can only result in loss or no loss, with no possibility of a financial gain. This makes them insurable because the outcome is uncertain, but the loss is measurable and random, allowing insurers to pool risk and set premiums to cover expected losses. In contrast, speculative risk involves a chance of both gain and loss and is not generally insurable since it includes intentional risk-taking where a policy couldn’t fairly indemnify a gain. Adverse selection is about the tendency of higher-risk individuals to buy insurance, not a type of risk itself, and insurance is the mechanism to transfer risk rather than a risk type. So the term that fits “risk that involves the chance of loss only and is insurable” is pure risk.