South Carolina Life Insurance Practice Exam

What type of risk is insurable?

1. Pure risk

2. Speculative risk

3. Market risk

4. Credit risk

The correct answer is: Pure risk

Pure risk is insurable because it involves situations that can result only in loss or no loss, with no opportunity for gain. In the context of insurance, pure risks are those that are predictable and quantifiable, such as the possibility of death, fire, theft, or natural disasters. Insurers typically cover these types of risks, as they can assess the likelihood and potential financial impact of these events occurring, allowing them to set premiums that are proportional to the risk. In contrast, speculative risk includes situations where there is a chance of loss, gain, or no loss. Examples include investments in the stock market or starting a business. These risks are not insurable because they are driven by human decisions and market conditions, which cannot be accurately predicted by insurance providers. Moreover, market risk and credit risk fall into categories of financial risk associated with investments and borrowers, respectively, and are not insurable as traditional insurance products.