The term used for risks that are insurable is:

• A. Speculative risk
• B. Pure risk
• C. Financial risk
• D. Reputational risk

Answer: (B)

The main idea is that insurable risks are pure risks. A pure risk is one where the outcome is either a loss or no loss, with no possibility of a financial gain from the event. Insurance works by pooling many similar exposures to predict losses, so the risk must be a pure risk: accidental or random, with a measurable potential loss, and not so catastrophic that a single event endangers the insurer. The insured typically has no control to turn the outcome into a profit, and there are enough similar exposures to estimate expected losses and set a fair premium. Examples include property damage from fire, medical expenses from illness, or theft of insured property. In contrast, speculative risk involves a chance of both loss and gain (like investing or starting a new venture) and isn’t insurable in the standard sense; reputational and financial risks are generally not classified as insurable pure risks due to measurement and predictability challenges.