California PSI Site – Life, Accident and Health Agent (Life Agent) Practice Exam

Pure risk is characterized as insurable because it involves situations that can lead to either a loss or no loss, but not a gain. This type of risk is associated with events such as accidents, natural disasters, and death, where the only outcomes are negative or neutral—meaning you can't profit from the event itself.

Insurance products are designed to provide financial protection against these potential losses. For instance, when someone purchases life insurance, they're taking steps to mitigate the financial impact of their death on beneficiaries, which exemplifies how pure risk is managed through insurance. In essence, the insurability of a risk stems from the ability to quantify it, pool it among many insured individuals, and transfer the financial consequences from an individual to an insurance company.

In contrast, speculative risk involves scenarios where there is a chance of gain or loss, such as investing in the stock market, which is not typically insurable. Other types of risks, like financial and operational risk, are often related to business activities and are managed through different strategies rather than insurance.