Canadian Accredited Insurance Broker (CAIB) One Practice Exam

How does speculative risk differ from pure risk?

1. Speculative risk is insurable but pure risk is not

2. Speculative risk means there is a chance to gain or lose, whereas pure risk means one can only lose

3. Speculative risk means there is only the chance to lose, whereas pure risk means you have a chance to win too

4. Speculative risk is a term invented by marine insurance companies in 1864

The correct answer is: Speculative risk means there is a chance to gain or lose, whereas pure risk means one can only lose

Speculative risk is characterized by the possibility of both gain and loss, which distinguishes it from pure risk. In pure risk, outcomes are limited solely to loss or no loss, meaning the potential for gain does not exist; one can only face a negative result or stay in the same position. This fundamental difference between the two types of risks is crucial in understanding risk management and insurance practices. In a practical context, speculative risks often involve investments or entrepreneurial ventures where there is the potential for profit along with the possibility of financial loss. This contrasts with pure risk scenarios, such as those involving natural disasters or accidents, where the only outcome is either suffering a loss or not experiencing any loss at all. Recognizing this distinction is essential for brokers and clients when considering coverage and the nature of the risks involved.