Illinois Casualty Insurance State Practice Exam

Which term describes the uncertainty regarding whether an event will occur to cause a loss?

1. Peril

2. Hazard

3. Pure Risk

4. Indemnity

The correct answer is: Pure Risk

The term that accurately describes the uncertainty regarding whether an event will occur to cause a loss is "Pure Risk." Pure risk involves situations where there is a possibility of loss or no loss, but no chance of gain. This is contrasted with speculative risk, which involves the possibility of loss, no loss, or gain. In the context of insurance, pure risks are insurable because they are beyond the control of individuals and are generally predictable in statistical terms. Examples include risks associated with natural disasters, theft, or injury, where the outcome can only be a loss or no loss. Understanding pure risk is essential for insurers when assessing coverage needs and determining premiums, as they rely on the predictable nature of these risks to create adequate insurance products.