Pure Risk
Candlefocus EditorPure risk can be divided into three general categories: personal, property, and liability. Personal risk refers to potential losses that may result from illness, disability, or death. Property risk covers potential losses that may result from natural disasters, theft, or damage. Liability risk is related to potential losses that may result from legal liabilities, lawsuits or other legal exposures.
Many cases of pure risk are insurable, meaning the insured (an individual, business, or another entity) can transfer the risk to another party in exchange for a premium payment. This process is known as risk transfer, is generally done with the help of a qualified insurance provider.
Risks that are not considered pure risk are typically classified as speculative risk due to their uncertainty. Speculative risk can be reduced through careful decision making and financial planning. However, pure risk can only be prevented, reduced, retained, or transferred by the affected parties.
Although pure risk encompasses significant potential for negative outcomes, having an understanding of its components and potential consequences can help reduce one’s exposure to it. Taking proactive steps such as purchasing appropriate insurance coverages, mitigating potential hazards and threats, conducting thorough research about legal liabilities, and building an emergency fund can all help minimize pure risk.