Georgia Life and Health Insurance Practice Exam 2025 – Complete Study Resource

The defining characteristic of pure risk is the potential for loss. Pure risk refers to situations where there is only the possibility of experiencing a loss with no opportunity for gain or profit. In insurance contexts, pure risks are typically insurable risks, such as damage to property, illness, or death, where the outcomes are limited to negative results.

Unlike speculative risks, which involve the chance of both profit and loss, pure risks focus solely on the downside, making them fundamental to the concept of insurance. The essence of pure risk lies in its unpredictability regarding whether a loss will occur, not in the certainty of loss (which would suggest a guaranteed outcome).

While low risk of occurrence might apply in some scenarios, it does not define pure risk; rather, it describes the likelihood of a loss. Similarly, guaranteed loss would imply certainty, which does not align with the characteristics of pure risk. Thus, the correct understanding of pure risk centers on the potential for loss as its sole outcome.