Which type of risk is generally covered by insurance policies?

Insurance policies are primarily designed to cover pure risks. Pure risk refers to situations that present only the potential for loss without the chance for gain. Examples include risks related to natural disasters, accidents, theft, and health-related issues, where the outcomes could result in financial loss but do not present a possibility of financial gain.

In contrast, speculative risks involve a chance that could result in either a profit or a loss, such as investing in stocks or starting a new business. Because insurance is built to provide protection against unanticipated losses and not to cover opportunities for profit, it does not encompass speculative risks.

Market risk and financial risk also fall outside the scope of traditional insurance. Market risk relates to fluctuations in the financial markets, and financial risk pertains to potential losses in financial transactions. Neither of these can be effectively managed or mitigated through standard insurance products, making pure risks the focus of most insurance offerings.