Texas General Lines — Life, Accident, Health and HMOGeneral InsuranceEasy
A producer is explaining the concept of 'risk' in insurance to a new client. Which of the following best describes 'pure risk'?
- AA situation where there is only a chance of loss or no loss.
- BA situation where there is a chance of loss or gain.
- CA situation where the outcome is always a loss.
- DA situation that is always insurable due to its certainty.
Show answer & explanationAnswer & explanation
Correct answer: A. A situation where there is only a chance of loss or no loss.
Pure risk is a situation where there is only a possibility of loss or no loss, with no chance of gain. These are the only types of risks that are insurable, as they meet the requirements for predictability and quantifiable loss.
Why the other options are wrong
- B. This describes speculative risk, which is not insurable.
- C. This describes a certainty, not a risk.
- D. This is incorrect; pure risk involves uncertainty of loss, not certainty, but is insurable.
Pure Risk
A type of risk where there is only a possibility of loss or no loss, with no chance of financial gain. These are generally insurable.
- No chance of gain.
- Only loss or no loss outcomes.
- Insurable.
Memory trick: Purely loss, or nothing at all.