Which term is typically used to describe insurable risks?

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

Answer: (D)

Insurable risks are pure risks—situations where the outcome can only be a loss or no loss, with no possibility of a gain. Insurance is built to cover this type of risk because the event is uncertain but finite, losses can be measured, and a large number of similar exposures can be pooled to set predictable premiums.

Speculative risks, by contrast, involve a chance of both loss and gain (for example, starting a new venture or investing in a volatile market), which makes them unsuitable for traditional insurance. Reputational risks and many financial risks are also not typically insured because their outcomes are hard to quantify, highly subjective, or not easily pooled across many policyholders.