Life & Health Insurance Practice Exam 2025 - Free Practice Questions and Study Guide

Speculative risk is the correct answer because it refers to situations where there is a chance of experiencing either a loss or a gain. This type of risk typically arises from activities like investments or business ventures, where potential outcomes can lead to both profit and loss. Because speculative risks involve uncertainty with the possibility of earning a profit, they are generally not insurable.

Insurable risks, such as pure risks, only involve the potential for loss without the chance for gain. This is why insurers can underwrite pure risks; they provide coverage against events like theft, fire, or natural disasters, where the only outcome can be a financial loss.

Business risk is related to the operation of a business and its ability to earn a profit, which again can involve both loss and gain but is generally tied to the overall performance of a business and is not specifically insurable in the same sense as pure risks.

Investment risk specifically applies to the volatility of investments and the potential for financial loss in the investment market. While sometimes similar to speculative risk, it often refers to the potential loss on an investment rather than encompassing the broader concept of gain alongside loss.

Understanding these distinctions clarifies why speculative risk is the type that features both loss and gain without the possibility of being insured