How do we distinguish between Pure Risk and Speculative Risk?

How do we distinguish between Pure Risk and Speculative Risk?

How do we distinguish between Pure Risk and Speculative Risk? The term pure rik must be distinguished with speculative risk. Pure risks are those which have the prospect of loss or no loss. But in a speculative risk the fear of Joss and the hope of gain are both associated with it. The normal business risk is a speculative risk. However, the risk of fire is a pure risk. It is only the pure risk which is dealt with by insurance. Although risks of an individual are always uncertain and not measurable, it can be measured with the help of knowledge of the past occurrences by way of applying law of large number. Insurance for all purposes is a device to cover losses arising out of uncertain events.

However, in General Insurance the premium or the price of insurance is certain and the measures of indemnity are also known both to the insured and the insurer. Therefore, the element of uncertainty in General Insurance is associated with only the happening or not happening of the event of the insured risks.

Different methods of re-insurance

Different methods of re-insurance What are the different methods of re-insurance? Reinsurance can be effected broadly by two methods: (a) Facultative; and (b) Treaty. Facultative reinsurance is effected only in …

What is Reinsurance

What is Reinsurance It is understood that in insurance the fund of the policyholders is managed by insurance companies and the losses incurred by a few are shouldered by many. …

The Actuarial Principle of Life Insurance

The Actuarial Principle of Life Insurance The actuarial side of life insurance is the function of mathematicians. An actuary or mathematician with the help of mortality table can calculate the …

What is the greatest value of Insurance

What is the greatest value of Insurance Insurance is a socio-economic institution that reduces risk both to society and to individuals. This is done by combining under one management, a …