Vermont Life and Health Practice Exam

Pure risk is considered insurable because it involves situations that can lead to a loss or no loss but do not have the possibility of a gain. This type of risk is typically associated with events such as accidents, natural disasters, or illness—where the outcomes are detrimental and the potential for profit does not exist. Insurance companies are structured to cover these types of risks because they can use statistical data to calculate the likelihood of such events occurring and set premiums accordingly.

In contrast, speculative risk involves scenarios that can result in either profit or loss, such as investments in stocks or starting a business. These are not insurable because insurance is not intended to cover potential gains and losses stemming from personal judgments or market fluctuations. Investment risk and market risk also fall under the category of speculative risk, as they deal with potential losses associated with trading and the economy's performance. Therefore, they do not meet the criteria for insurability, which is primarily focused on pure risks.