What is a pure risk?

A pure risk refers to a situation where there is a possibility of a loss or no loss occurring, but no chance of gain. This concept is fundamental in the field of insurance, as it distinguishes between different types of risks and helps in understanding how insurance coverage is structured.

In a pure risk scenario, the outcome is binary: the policyholder may either experience a loss (e.g., damage to property, injury) or face no loss at all (e.g., no damage occurring). The absence of any potential for profit or gain defines pure risk, making it suitable for insurance. Policyholders seek insurance for pure risks because they want to mitigate potential losses, knowing that the only outcomes are unfavorable or neutral.

The other options suggest the possibility of profit or breaking even with potential gains, which falls outside the definition of pure risk. Such situations would involve speculative risks, where outcomes include positive returns or gains, contrasting the essence of pure risk, which strictly involves loss prevention.