Which of the following best describes Pure risk?

Pure risk is best described as a situation that can only lead to loss or no loss, with no possibility of financial gain. This type of risk typically involves scenarios where adverse outcomes may occur, such as natural disasters, accidents, or health issues. The nature of pure risk is such that the potential for profit is absent; rather, individuals or organizations are only concerned about the potential for loss and how to mitigate that risk.

This definition is crucial as it delineates pure risk from speculative risk, which can involve either a gain or a loss. In speculative situations, like investments, the outcome can be favorable, resulting in profit, or unfavorable, leading to loss. Pure risk, on the other hand, focuses solely on the downside.

Understanding pure risk is essential in various fields, particularly in insurance, where policies are designed to mitigate these specific risks. Insurance products typically cover pure risks to protect against potential financial losses, making it a vital concept in risk management and insurance practices.