What distinguishes between speculative and pure risk?

The distinction between speculative risk and pure risk lies in the presence or absence of potential for loss and gain. Speculative risk is characterized by the possibility of both profit and loss, making it an investment-like scenario. In contrast, pure risk is solely concerned with the possibility of loss, as it involves situations where only negative outcomes are possible, such as natural disasters or accidents.

By identifying that speculative risk includes the chance of loss, it emphasizes the inherent uncertainty tied to financial investments or business ventures, where outcomes can vary widely. This is key in crop insurance, where farmers may weigh the likelihood of various risks affecting their yields and ultimately their financial stability. Thus, understanding that pure risk does not involve opportunities to gain clarifies its definition and underscores the focus on safeguarding against potential losses rather than seeking profit.

In summary, the correct answer effectively highlights that speculative risks are associated with both loss and gain, while pure risks are concerned only with the possibility of losing. This distinction is fundamental in the context of risk management and insurance practices.