Speculative Risk

What is speculative risk and how does it apply in regards to insurance?

What is speculative risk?What is speculative risk?  First off, you need to know the definition of risk.  Risk is defined as the uncertainty (or chance) a loss will occur and is what causes people to purchase insurance.  You know you are going to die, but you don’t know when.  You better buy some life insurance.  Beyond that, there are two subcategories of risk you need to be familiar with for your insurance exam and they are as follows:

1 – Speculative risk is a risk situation where there is both a chance of gain and loss.  Speculative risk is NOT insurable.

2 – Pure risk is a risk situation that presents a chance for loss only, and no chance for gain.  Pure risk IS insurable.  Learn more about this definition by reading our article on pure risk.

What are some examples of speculative risk?

Gambling is a great example.  You put $100 on a blackjack bet.  You could win $100, or lose your $100.  No one knows.  Insurance companies are unwilling to write coverage for these types of risk situations.  Think about it though.  If they did, you would see them all over Vegas.  You don’t though, and this is why.

Another example of a speculative risk is investing in the stock market.  You could make money, or lose money.  You can’t buy insurance for your investments in the stock market.

What is an example of an insurance licensing exam test question related to speculative risk?

Here you go:

All of the following are true about speculative risk EXCEPT:

A.  Speculative risk involves an uncertainty of loss
B.  Speculative risk involves a possibility of gain
C.  Speculative risk is a feature of gambling
D.  Speculative risk is a feature of insurance

Correct Answer:  D

Explanation:  Only pure risk is insurable, which is defined as the chance of loss without any possibility of gain. Speculative risk, like investing in the stock market, which has the chance of gain or loss, is not insurable.

What else can help me prepare to pass my insurance licensing exam on my first attempt?

If you need any help preparing to pass an insurance licensing exam, we have some excellent courses which are primarily video-based.  Check out our available courses now:

Insurance Licensing Exam Prep Video Training Courses

Other tips to help you pass your insurance licensing exam on your first attempt:

Insurance Exam Test Taking Tips

Also, check out our definition and question of the day videos on our YouTube channel:

PassMasters Insurance Exam Prep YouTube Channel