What are the two main types of risk?

The correct answer focuses on pure risk and speculative risk, which are fundamental concepts in the study of risk management and insurance.

Pure risk refers to situations that can lead only to loss or no loss; there is no possibility of financial gain. Examples include natural disasters, accidents, and health-related issues. These types of risks are insurable because they provide a clear basis for risk assessment and underwriting.

In contrast, speculative risk involves scenarios where there is a chance for both loss and gain. Examples include investments in stocks or starting a new business. Speculative risks are typically not insurable since they involve greater uncertainty and are more aligned with investment activities rather than risk management.

Understanding the distinction between these two types of risks is essential for anyone in the field of insurance and finance, as it helps determine what can be insured and how organizations manage their risk exposure effectively.