…, The Actuarial Principle of Life Insurance The actuarial side of life insurance is the function of mathematicians. However, in General Insurance the premium or the price of insurance is certain and the measures of indemnity are also known both to the insured and the insurer. Most speculative risks are uninsurable, because they are undertaken willingly for the hope of profit. Each offers a chance to make money, lose money or walk away even. Managing Risk, speculative Risk and Pure Risk discussed by Prof Tim. read the following two post and respond to the 2nd post Continue Reading. Pure risks are those risks where the outcome shall result in loss only or at best a break-even situation. https://academicheroes.com/wp-content/uploads/2020/11/logo1-1.png. ‘Speculative’ risks may result in either … Pure risk, also known as absolute risk, is insurable. Risk categories. It is much easier to mitigate yes or no than levels of mitigation such as in speculating in the stock market with money gained from customer deposits. Start studying Pure Risk vs Speculative Risk. The possibility of gain is a moral hazard (more on that later) that makes people seek out the risk, rather than avoid it. It's why we wouldn't sell a car insurance policy to someone who was into drag racing. Speculative risk would be like gambling or investing in the stock market. Insurance for all purposes is a device to cover losses arising out of uncertain events. The video linked below will give you a better understanding of a homeowners policy. Gambling and investing in the stock market are two examples of speculative risks. Speculative risk differs from pure risk because there is the possibility of profit or loss, such as investing in financial markets. first post Speculative risk is risk that is taken on purpose in order to try to achieve gains. 3- Society may benefit from speculative risk but harmed from pure risk. Over the years, our writers have gained solid experience in all academic disciplines, giving them a competitive edge to provide only first-rate academic papers. The easiest way to tell the difference between the two types of risk is the types of outcome that are possible, and whether the risk is voluntary. Individuals transfer part of a … Pure Risk In contrast to speculative risk, pure risk involves situations where the only outcome is loss. 2- The law of large numbers apply easily to pure risks than speculative risk. It seems to be that pure risk is less difficult to mitigate because it only deals with if there is a loss or not. Pure risk is the type of risk that is commonly insured such as the risk of disease, disaster, fire and accidents. So far we have been dealing with speculative risks –all investment risks are speculative risks, in that one can either gain or lose as a result In this unit we will deal with pure risks. Appalachian Airlines began operating in 2010. This is done by combining under one management, a …, What is the main function of Insurance We all know that life is full of uncertainty. Pure risk or absolute risk is a type of risk that cannot be controlled and has only two possible outcomes: complete loss or no loss, therefore there are no opportunities for gain or profit. How might that affect profits? Gambling and investing in the stock market are two examples of speculative risks. Like death in accident is a pure risk. Almost all financial investment activities are examples of speculative risk, because such ventures ultimately result in an unknown amount of success or failure. For example, the risks of an accident, a car theft or earthquake are pure risks. Pure risks are those which have the prospect of loss or no loss. In order to understand why, you will need to understand the difference between the two. However, speculative risk also involves the possibility of gain as well - even if there is no loss. Thus playing roulette or buying Microsoft shares is considered a speculative risk, whereas being robbed or dying is considered a pure risk. All speculative risks are undertaken as a result of a conscious choice. Since 2010, we have offered professional writing services to clients all over the world. Speculative risk is controllable risk as it involves moral hazard that makes people seek. However, the risk of fire is a pure risk. Pure risk : 1.Pure risk is the risk which involves only the possibility of loss or no loss. Reinsurance can be effected broadly by two methods: (a) Facultative; and (b) Treaty. Business risks are broadly categorized as pure risks, which are negative events over which the organization has no control, and speculative risks, which are potential effects of actions taken and choices made that may have positive and/or negative effects. Explanation: This requires different levels of mitigation which includes but is not limited to diversification and hedging much more difficult than purchasing premiums that pay if a vehicle is damaged and do not if there is no damage. 2. In other words a speculative risk is a situation that might also end in a gain. Thanks. How do we distinguish between Pure Risk and Speculative Risk? However, products do exist to hedge against certain types of speculative risk such as exchange rate risk.Pure risk is the most likely type of risk to impact individuals who mostly avoid speculative risk if they don't invest or own a small business.Some definitions of … The …, How insurance protects value of life The main economic problem which arises when someone in the family dies, is the loss of earnings of the deceased person. These are the risks that directly affect the individual’s capability to earn income. Facultative reinsurance is effected only in …, What is Reinsurance It is understood that in insurance the fund of the policyholders is managed by insurance companies and the losses incurred by a few are shouldered by many. Speculative risk can be contracted with pure risk, a category of risk in which the only possible outcome is loss. The purchase of life insurance leads itself to a regular, consistent savings plan. An actuary or mathematician with the help of mortality table can calculate the …, What are the social and economic values of Insurance What are the social and economic values of Insurance: Dr. Mark R. Greene in his book “Risk and Insurance” has listed …, How Life Insurance schemes meet the saving needs How Life Insurance schemes meet the saving needs? It seems to be that pure risk is less difficult to mitigate because it only deals with if there is a loss or not. Pure VsSpeculative Risk Pure Risk : Uncertainty whether loss will occur No possibility of gain. Any vehicles financed by my company are mitigated by insurance that pay if a vehicle is damaged or do not pay if a vehicle is not damaged. Thanks for this post. How would you suggest your organization go about determining if an identified risk is pure or speculative. Risk is the uncertainty that a loss may occur. 2nd post Speculative risk is that a loss, no loss or gain – all 3 are possible. A risk, in a business context, is anything that threatens an organization's ability to generate profits at its target levels. But in a speculative risk the fear of Joss and the hope of gain are both associated with it. Pure risks are those risks where only a loss can occur if the event happens. Speculative risks are undertaken through a conscious choice, and they are considered a controllable risk. Pure risk, also known as absolute risk, is insurable. A speculative risk is one in which both profit or loss are possible (gambling, purchasing shares) Why distinguishing between pure and speculative: 1- Private insurers insure only pure risks. 3. While speculative risk deals with gain or loss (profit or loss). Premature Death: Death of the bread earner with unfulfilled or unprovided financial obligations. effects of pure and speculative risks to which an organisation is exposed’. Old Age: It refers to the risk of not having sufficient income at the age of retirement or the age becoming so that mere is a possibility that the individual may not be able to earn the livelihood. The term pure rik must be distinguished with speculative risk. Thank you for viewing Stuck on Homeowners? 2 5. Each offers a chance to make money, lose money or walk away even. Class we need your coverage here! While speculative risk deals with gain or loss (profit or loss). Speculative risk is usually associated with investment, which nearly always carries the possibility of making a profit or loss. For any questions, feedback, or comments, we have an ethical customer support team that is always waiting on the line for your inquiries. Pure risk, also known as absolute risk, is insurable. One can not deny the fact that insurance system has certain inherent weaknesses. We cannot think about a gain-gain situation.The result is always unfavorable, or maybe the same situation (as existed before the event) has remained without giving birth to a profit (or loss).As opposed to this, speculative risks are those risks where there is the possibility of gain or profit. However what about insufficient insurance coverage. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Speculative Risk: Three possible outcomes exist in speculative risk; something good (gain), something bad (loss) or nothing (staying even). There are two types of risks: speculative risk vs. pure risk. I like what you have here. This is because …, Agent Banking in South-east Asia (Bangladesh), What are the objections against conventional life insurance, The weaknesses of conventional non-Life Insurance, The Actuarial Principle of Life Insurance, What are the social and economic values of Insurance, How Life Insurance schemes meet the saving needs. You will also learn several different ways to split risk exposures according to the risk types involved (pure versus speculative, systemic versus idiosyncratic, diversifiable versus nondiversifiable). Learning Objectives. Therefore, the element of uncertainty in General Insurance is associated with only the happening or not happening of the event of the insured risks. But in a speculative risk the fear of Joss and the hope of gain are both associated with it. Speculative risks are not insurable. For example, the risks of Unlike most speculative risks, pure risks are typically insurable through commercial, personal, or liability insurance policies. Speculative Risk vs. Mathematically, when defining risk in terms of probability over 0 to 1; Pure risks have that probability of losses very close or nearly equal to 1 with very very narrow chances of escaping that loss whereas in speculative risk, we can very much limit our losses and kind of hinge it towards a particular value this making it speculative in nature. It is only the pure risk which is dealt with by insurance. Speculative risk carry some inherent advantages ti the economy or the society at large while pure risks like uninsured catastrophes may be highly damaging. The normal business risk is a speculative risk. Speculative risks are not insurable because the lure of the possible reward causes people to take these risks upon themselves willingly. Can a situation cause one to become the other? Both speculative risk and pure risk involve the possibility of loss. There are various reasons cited by those who do not accept life insurance …, The weaknesses of conventional non-Life Insurance What are the weaknesses of conventional non-Life Insurance? Speculative Risk: Three possible outcomes exist in speculative risk: something good (gain), something bad (loss) or nothing (staying even). 2. Example : Fire to property, Accident Speculative Risk : Uncertainty of even that will that could provide either profit or loss Example : Business venture ,Investment decisions We can not avoid the risks in life and hence insurance. The following are illustrative examples of speculative risk. Pure risks are those which have the prospect of loss or no loss. Pure vs. speculative risk While pure risk is beyond human control and can only result in a loss if it occurs, speculative risk is taken on voluntarily and can result in either a profit or loss. Speculative Risk: Three possible outcomes exist in speculative risk: something good (gain), something bad (loss) or nothing (staying even). only need 100 words no plagairism. Personal risks can be classified into the following types: 1. The classic theory of risk divides it into the following two categories: • Pure risk, and • Speculative risk. Pure risk would be like a house fire, or premature death. In investment, it may lead to an investor getting returns that are lower than the expected value. How do we distinguish between Pure Risk and Speculative Risk? Pure risk (also known as accidental risk or hazard risk) is defined as the risk related to loss exposures generated by accidental events that can generate only two results when they occur: • Losses, or • No losses. pure risk is a situation that can only end in a loss. Note that ‘pure’ risks can result only in preservation of the status quo or loss to the organisation – for example injury, disease, damage or death. The normal business risk is a speculative risk. The term pure rik must be distinguished with speculative risk. Any vehicles financed by my company are mitigated by insurance that pay if a vehicle is damaged or do not pay if a vehicle is not damaged. Possibility of profits/ loss : 1.Occurence of this risk may result in loss only and no gains. Although risks of an individual are always uncertain and not measurable, it can be measured with the help of knowledge of the past occurrences by way of applying law of large number. Gambling and investing in the stock market are two examples of speculative risks. Investing in the stock market is an example of a speculative risk. For example, the …, Different methods of re-insurance What are the different methods of re-insurance? In a business …, What is the greatest value of Insurance Insurance is a socio-economic institution that reduces risk both to society and to individuals. (adsbygoogle = window.adsbygoogle || []).push({}); What are the objections against conventional life insurance   What are the objections against conventional life insurance? Speculative risks on the other hand are a family of risks in which some possible outcomes are beneficial. Pure Risk mean it is certain that gain cannot be made out of the situation – only loss or no loss will occur. Richardson, Seneca College and University of Toronto - camera wizard again by Edward - done in BUS106 Section MW Dec 4th 2012. 10 Mar 4pm EST. Speculative risk is the risk that something will happen causing a loss, or something could happen leading to a gain. Speculative risk: Speculative risk involves both the possibility of gain as wellas possiblity of loss. Ask Me Anything: About Origin And Nature Of Banking, Security- Concept & Types Characteristics of good Security Proper Valuation of Security, Shortfall In Documentation And Others Lapses, Banking News Headlines all over the globe. 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