Texas Property and Casualty License Practice Exam

Which type of risk does insurance specifically cover?

1. Speculative risk

2. Pure risk only

3. Investment risk

4. Comprehensive risk

The correct answer is: Pure risk only

Insurance specifically covers pure risk, which refers to situations that can only result in loss or no loss, such as theft, fire, natural disasters, or accidents. These events are beyond the control of the insured individual or entity and do not involve any possibility of financial gain; they are primarily associated with unpredictable occurrences that can lead to financial hardship. In contrast, speculative risk involves the chance of loss or gain, commonly encountered in business and investments, where outcomes can lead to profit or loss—this type of risk is not insurable. Investment risk pertains specifically to financial investments and their returns, which are subject to market fluctuations and are outside the scope of traditional insurance policies. Comprehensive risk is not a standard insurance terminology and usually does not refer to a specific type of risk covered by insurance. Therefore, the focus of insurance on pure risk is why this answer is accurate and essential for understanding the foundational principles of risk management in the context of insurance.