South Carolina Life Insurance Practice Exam

What does insurance primarily protect the insured from?

1. Natural disasters

2. Speculative risks

3. Market fluctuations

4. Financial fraud

The correct answer is: Speculative risks

Insurance primarily protects the insured from speculative risks, which are risks that can lead to unpredictable outcomes and potential financial losses. Speculative risks involve situations where there is a chance of gain or loss, such as investing in stocks or starting a business. Insurance provides a safety net against these uncertainties by transferring the risk from the insured to the insurer, thereby allowing individuals and businesses to mitigate the impact of events that could cause financial hardship. In contrast to speculative risks, the other options represent different types of risks. Natural disasters usually fall under a category of insurable risks that can be protected by insurance, but they do not encompass the idea of speculation. Market fluctuations are part of investment strategies and can lead to gains or losses but are typically not covered by insurance policies. Financial fraud is a serious concern but is often managed through different means like fraud protection services rather than traditional insurance coverage. Understanding the differentiation among these concepts helps illustrate why speculative risks are the primary focus of insurance protection.