In the context of risks, what is a pure risk?

A pure risk is defined as a situation where only the possibility of loss exists, with no chance for financial gain. This type of risk is often associated with events that can result in a loss or no loss, such as natural disasters, illness, or accidents. Insurance typically covers pure risks because they involve predictable and insurable events that can result in economic losses.

For example, if a business faces a fire, the only outcomes are either suffering a loss or not having a loss at all. This stands in contrast to speculative risks, where there is a chance for both gain and loss, such as investments in the stock market. The option that connects to the concept of pure risk clearly illustrates that loss is the defining characteristic, distinguishing it from other types of risks, such as those connected to potential profits or variable market conditions.