What part of the law defines pure risk as only being insurable?

What part of the law defines pure risk as only being insurable?

• A. It may result in a gain
• B. It only results in a loss
• C. It is a forced assumption
• D. It is a calculated risk

Answer: (B)

Pure risk is defined as a situation where there is only the possibility of loss, with no opportunity for gain. This concept is essential in the insurance field because insurance is designed to protect against uncertainties that lead to potential losses. In the context of insurance, pure risks are considered insurable since they present a scenario where financial loss is the only outcome. By focusing solely on losses, insurers can evaluate the likelihood of certain events occurring (like theft, fire, or natural disasters) and set premiums accordingly. This allows them to create a risk pool, where the losses of a few are covered by the premiums collected from many, ensuring that the losses do not financially devastate the insured individuals. The other options do not accurately capture the essence of pure risk. For instance, a scenario that may result in a gain does not fit the definition of pure risk, as it introduces the element of opportunity or benefit, which is characteristic of speculative risks rather than pure risks. Similarly, the notion that it is a forced assumption lacks relevance to the insurability aspect of pure risk, while calculated risks involve a potential for both loss and gain, fundamentally diverging from the definition of pure risk.

Pure risk is defined as a situation where there is only the possibility of loss, with no opportunity for gain. This concept is essential in the insurance field because insurance is designed to protect against uncertainties that lead to potential losses. In the context of insurance, pure risks are considered insurable since they present a scenario where financial loss is the only outcome.

By focusing solely on losses, insurers can evaluate the likelihood of certain events occurring (like theft, fire, or natural disasters) and set premiums accordingly. This allows them to create a risk pool, where the losses of a few are covered by the premiums collected from many, ensuring that the losses do not financially devastate the insured individuals.

The other options do not accurately capture the essence of pure risk. For instance, a scenario that may result in a gain does not fit the definition of pure risk, as it introduces the element of opportunity or benefit, which is characteristic of speculative risks rather than pure risks. Similarly, the notion that it is a forced assumption lacks relevance to the insurability aspect of pure risk, while calculated risks involve a potential for both loss and gain, fundamentally diverging from the definition of pure risk.