State Farm Insurance License Practice Exam

What type of risk involves no chance for gain, only the possibility of loss?

1. Speculative Risk

2. Pure Risk

3. Operational Risk

4. Financial Risk

The correct answer is: Pure Risk

The correct answer is pure risk. This type of risk involves situations where there is no possibility for financial gain, only the potential for loss. Pure risks are typically insurable and relate to events like accidents, natural disasters, or health-related issues, which can result in a loss but do not provide a chance for profit. In contrast, speculative risk includes opportunities for both profit and loss, such as investing in the stock market or starting a new business. Operational risk relates to losses stemming from inadequate or failed internal processes, people, and systems, or from external events. Financial risk is associated with the loss of monetary value in financial transactions or investments. Understanding these differences emphasizes the defining characteristics of pure risk, clarifying its role in the insurance industry.