What are the different types of risks in insurance?


Editorial team Published on

Insurance companies divide risk into key categories to decide what they can cover and how much to charge. The primary division is between pure risk (which insurance covers) and speculative risk (which insurance does not cover).

Pure Risk vs. Speculative Risk

  • Pure Risk: Involves only a chance of loss or no loss, with zero possibility of financial gain. Examples include a fire destroying a home or a sudden car accident. Insurers cover pure risks.
  • Speculative Risk: Involves a chance of loss, no change, or financial gain. Examples include gambling or buying stocks. Insurers do not cover these because the risk is intentional for profit.

Core Exposure Categories

  • Personal Risk: Threats that impact an individual’s earning power or life, such as health issues, disability, job loss, or premature death.
  • Property Risk: Threats to physical assets like buildings, inventory, or equipment caused by fire, theft, or natural disasters.
  • Liability Risk: Legal responsibility for causing harm, injury, or property damage to another person.

Other Common Classifications

  • Fundamental Risk: Large-scale catastrophic events that affect entire groups or economies, such as earthquakes, floods, or war.
  • Particular Risk: Isolated events that affect only individuals or small groups, such as a localized house fire or a personal theft.
  • Financial Risk: Any exposure that can be directly measured and quantified in monetary terms.

You can read more about how brokers evaluate these categories on the OnTime Archipelago Blog.