South Carolina Life Insurance Practice Exam

Wagering on a sporting event is considered what type of risk?

1. Pure Risk

2. Speculative Risk

3. Insurable Risk

4. Traditional Risk

The correct answer is: Speculative Risk

Wagering on a sporting event is classified as speculative risk because it involves the possibility of a gain or loss. Unlike pure risk, which is associated solely with the potential for loss with no opportunity for profit (such as the risk of a house burning down), speculative risk encompasses scenarios where there is a chance of either losing something or gaining something, such as betting on sports outcomes. In the case of wagering, individuals risk their money with uncertain outcomes; if they win, they gain back their original stake plus additional profits, while if they lose, they forfeit their money. This element of potential profit differentiates speculative risk from pure risk, which is purely about potential loss without the chance of financial gain. Moreover, insurable risks generally refer to pure risks that can be covered by insurance policies, which is not applicable to betting scenarios. Traditional risk does not have a defined meaning in this context, making speculative risk the appropriate classification for wagering activities.