What defines pure risk in insurance?

Pure risk is characterized by situations that can result in either a loss or no loss at all, without any potential for financial gain. This concept is central to understanding how insurance operates, as insurers only cover risks that fit this definition. For example, events like natural disasters, accidents, or theft fall into the category of pure risk; they represent a chance of suffering a loss but have no possibility of yielding a profit.

The relevance of this definition lies in the insurable nature of pure risks. Insurance products are typically designed to provide coverage for these scenarios, which helps individuals and businesses manage the uncertain impact of losses. The role of insurance is to transfer the risk of loss from the insured to the insurer, which is only feasible when the risk is purely a loss or no loss scenario.

In contrast, the other options present concepts that do not align with the definition of pure risk. For example, calculated risks with predictable outcomes imply a chance of gain, while risks that can lead to profit describe situations that cannot be covered under pure risk. Therefore, the defining characteristic of pure risk is its focus on the possibility of loss or no loss, making it a fundamental principle in the insurance industry.