What defines Pure Risk?

Pure risk is defined as a situation where there is a chance of loss or no loss, but no possibility of gain. This type of risk is characterized by its inherent uncertainty regarding the financial impact; the only outcomes are adverse ones, such as damage to property, injury, or other losses. For example, natural disasters, accidents, or theft are examples of pure risks because they can lead to a financial loss but do not offer the potential for profit or gain.

In contrast, risks with potential for gain, such as those associated with investments or speculative activities, involve outcomes that can be either profitable or unprofitable. Speculative risks are those where the likelihood of loss and gain exists, and therefore differ fundamentally from pure risks, which only allow for loss. Understanding pure risk is crucial in the field of insurance and risk management, as these types of risks tend to be insurable.