South Carolina Personal Lines Practice Exam

What type of risk pertains to a situation where only loss is possible, with no potential for gain?

1. Speculative risk

2. Pure risk

3. Business risk

4. Investment risk

The correct answer is: Pure risk

The correct answer, which pertains to a situation where only loss is possible, with no potential for gain, is pure risk. Pure risk involves scenarios that can result in a loss or no change, but not a gain. Examples of pure risk include risks associated with natural disasters, accidents, or theft, where the best outcome is simply avoiding a loss, rather than generating a profit. In contrast, speculative risk involves both the potential for a loss and the possibility of a gain, such as investing in the stock market or gambling. Business risk refers to risks that companies face due to the market conditions and operational factors that could lead to financial loss or gain as part of their normal operations. Investment risk specifically addresses the uncertainty associated with the return on an investment, which could either produce a profit or a loss. Understanding these distinctions helps clarify why pure risk is the only category that aligns with the condition of having no opportunity for gain, providing valuable insight into risk management and insurance considerations in personal lines.