What best defines pure risk in the context of insurance?

Pure risk is characterized by the possibility of loss or no loss, making it a specific category of risk that does not entail the chance of gaining anything. In the context of insurance, pure risk is fundamental because it involves situations where only negative outcomes are possible, such as damage to property, death, or illness. Insurance products are designed to address these types of risks, providing coverage against potential losses.

Understanding pure risk helps in grasping the nature of insurable risks. For example, if a homeowner's property is damaged by fire, the loss can be covered by insurance; however, there is no possibility of a financial gain in this scenario, which aligns perfectly with the definition of pure risk. This fundamental concept underpins most aspects of insurance underwriting and policy issuance.

Other risks that may include the potential for profit or more complex outcomes, such as speculative risks, are not classified as pure risks, which is why they are not relevant in this definition.