Auto insurance in Georgia from www.georgiacarinsurancequotes.net is an illustration of what would be described as a pure risk in the insurance business . A pure risk is a that pertains to the risk of an economic loss or no loss. It’s distinguished primarily on the profit and loss structure from the situation. For instance, a desire for real or personal property subjects the dog owner to the risk that the property is going to be damaged by windstorm; partially or totally destroyed by fire; or rendered useless directly or indirectly from perils of an identical character. The essence of the pure risk would be that the unfavorable event will occur or it will not. Accordingly, the risk is designated as pure.
Human life is also exposed to undesirable contingencies. These relate essentially towards the loss of income brought on by premature death; illness and/or disability; indigenous senior years; or general economic losses arising from unemployment. Fundamental essentials primary risks affecting human life values that could or might not cause a loss and hence constitute pure risk situations.
Pure risks are identified for purpose of risk management and insurance as: (1) property risks; (2) personal risks, and (3) liability risks. A fourth risk category is one that arises out of the failure of third party performance. It’s considered at length in Chapter XVII.
Speculative risks have to do with the risk of an increase, a loss, or no loss. Quite simply, speculative risks might have favorable consequences. For example, investors in securities will either experience a rise or decline in their selling price, or the price may remain constant. This is also true with respect to other kinds of investments and commercial ventures generally. The possibility of success, failure, or a break-even operation embodies a diploma of uncertainty which is speculative in character.
The distinction between pure and speculative enables you to define insurable and uninsurable risks. Houston states that “pure risks become insurable since theoretically the individual, at best, stands to break-even no matter which outcome occurs. Conversely, speculative risks become uninsurable since in a few instances the individual would be lured to use his insurance to make a profit which he wouldn’t otherwise earn in the absence of insurance.