Pure risk in insurance refers to what?

Pure risk in the context of insurance specifically refers to situations that can only result in a loss or no loss; there is no possibility of gain. This type of risk involves scenarios such as natural disasters, theft, and accidents, where the outcomes are limited to either incurring a loss or nothing at all. Therefore, understanding pure risk is crucial for insurers as it shapes the underwriting process, premium calculations, and overall risk management strategies.

In contrast, other options highlight aspects that do not fit the definition of pure risk. For instance, the possibility of gain or loss describes speculative risk, which is not applicable in the context of pure risk. The guaranteed outcome of insurance claims relates to the principles of insurance contracts, not the nature of risk itself, while the potential for policy cancellation pertains to the administrative side of insurance, rather than the inherent nature of risk in an insurance framework. Each of these options does not align with the strictly defined parameters of pure risk.