How is 'pure risk' defined in insurance terminology?

In insurance terminology, 'pure risk' refers specifically to a situation that involves a chance of loss but no opportunity for gain. This concept is foundational in insurance because it distinguishes types of risks. Pure risks are typically insurable, as they involve uncertain outcomes—such as health issues, property damage, or liability exposures—where the only possible financial outcome is a loss.

Pure risks are contrasted with speculative risks, which allow for the possibility of either a profit or a loss, such as investing in the stock market or gambling. Because pure risks do not involve any potential for gain, they are the focus of most insurance products, which aim to provide financial protection against adverse events.

Understanding this definition helps clarify why certain types of risks are insurable and provides insight into the reasoning behind risk management strategies in insurance policies.