Massachusetts Life Producer Practice Exam

What type of risk involves the potential for loss with no possibility for gain?

1. Speculative Risk

2. Pure Risk

3. Dynamic Risk

4. Static Risk

The correct answer is: Pure Risk

Pure risk involves scenarios where there is a chance of loss or no loss, but no possibility of gain. This type of risk generally relates to events such as natural disasters, accidents, or illnesses, where the potential outcomes are strictly negative or neutral—therefore, individuals or businesses can only lose. In contrast, speculative risks are characterized by the potential for both loss and gain, such as investments in stocks or business ventures. Dynamic risk pertains to changes in the economy and markets, which can produce either gains or losses. Static risk is associated with circumstances that do not change over time and can also involve elements of both loss and no loss. Thus, identifying pure risk as the correct answer emphasizes an understanding of different types of risks and their implications in insurance and risk management, clarifying why it is the only risk type that fits the criteria of having no possibility for gain.