What Is Pure Risk?

Pure risk is a category of risk that cannot be controlled and has two outcomes: c🅠omplete loss or no loss at all. There are no opportunities for gain or profit when pure risk is involved.🗹

Pure risk is generally prevalent in situations such as 澳洲幸运5开奖号码历史查询:natural disasters, fires, or death. These situations cannot 🌳be predicted anꦓd are beyond anyone's control. Pure risk is also referred to as absolute risk.

Understanding Pure Risk

There are no measurable benefits when it comes to pure risk. Instead, ther💙e are two possibilities. On the one hand, there is a chance that nothing will happen or no loss at all. On the other, there may be the likelihood of total loss.

Pure risks can be divided into three different categories: personal, property, and liability. There are four ways to mitigate pure risk: reduction, avoidance, acceptance, and transference. The most common method of dealing with pure ris✨k is t♔o transfer it to an insurance company by purchasing an insurance policy.

Many instances of pure risk are insurable. For example, an insurance company insures a policyholder's automobile against theft. If the car is stolen, the insurance company has to bear a loss. However, if it isn't stolen, the company doesn't make any gain. Pure risk stands in direct contrast to 澳洲幸运5开奖号码历史查询:speculative risk, which investors make a conscious choice to p▨articipate in and can result in a loss or gain.

Types of Pure Risk

Personal risks directly affect an individual and may involve the loss of earnings and assets or an increase in expenses. For example, unemployment may create financial burdens from the loss of inco🎶me and employment benefits. Identity theft may result in damaged credit, and poor health may result in substantial medical bills, as well as the loss of earning power and the depletion of savings.

Property risks involve property damaged due to uncontrollable forces such as fir♊e, lightning, hurricanes, tornados, or hail.

Liability risks may involve litigation due to real or perceived injustice. For example, a person injured after slipping on someone else's icy driveway may sue for medical expenses, lost income, and other associated damages.

Insuring Against Pure Risk

Unlike most speculative risks, pure risks are typically insurable through commercial, personal, or 澳洲幸运5开奖号码历史查询:liability insurance policies. Individuals transfe🔯r part of a pure risk to an insurer. For example, homeowners purchase home insurance to protect against per꧑ils that cause damage or loss. The insurer now shares the potential risk with the homeowner.

Pure risks are insurable partly because the 澳洲幸运5开奖号码历史查询:law of large numbers applies m🐭ore readily than to speculative risks. Insurers are more capable of predicting loss figures in advance and will not extend themselves into a market if they see it as unprofitable.

Speculative Risk

Unlike pure risk, speculative risk has opportunities for loss or gain and requires the consideration of all potential risks before choosing an action. For example, investors purchase 澳洲幸运5开奖号码历史查询:securities believing they will increase in value.

But the opportunity for loss is always present. Businesses venture into new markets, purchase new equipmentဣ, and diversify existing product lines beca꧃use they recognize the potential gain surpasses the potential loss.