Arizona Life and Health Practice Exam

Which of the following types of risk is considered insurable?

1. Pure

2. Speculative

3. Dynamic

4. Immeasurable

The correct answer is: Pure

Pure risk is considered insurable because it involves situations that present only the possibility of loss or no loss, without any chance of profit. Insurance is designed to protect against uncertainties that can result in financial loss, making pure risks suitable for insurance coverage. Examples of pure risks include events such as fire, theft, or natural disasters, where the outcome is either a loss occurs or it does not. In contrast, speculative risks involve both the potential for gain and the possibility of loss, such as investing in stocks or starting a business. These risks are generally not insurable because insurance companies do not cover situations where there is a chance to profit. Dynamic risk refers to changes in the environment that can cause losses, such as changes in laws or technology. Although dynamic risks can present challenges, they do not fit neatly into the insurance model as insurable risks because they often involve ongoing uncertainty and complexities outside of specific loss events. Immeasurable risks are those for which the potential for loss cannot be adequately quantified, making it difficult to assess the likelihood of occurrence and the financial implications. These risks cannot be effectively evaluated or priced by insurers, limiting their insurability. Therefore, pure risk stands out as the insurable type, as it aligns well with the principles