Question

Which of the following statements regarding risk and loss is NOT accurate from an insurance perspective?

A. Only speculative risk is insurable.
B. Risk is defined as the chance of loss.
C. The state of being subject to a loss is called loss exposure.
D. A loss is defined as an unplanned reduction in economic value.

Answer 1

The inaccurate statement about risk and loss from an insurance perspective is 'Only speculative risk is insurable.' The correct concept is that pure risks, which represent a chance of loss without potential gain, are typically the risks that are insurable, not speculative risks.

Step-by-step explanation:

The statement that is NOT accurate from an insurance perspective is A. Only speculative risk is insurable. In reality, it is the pure risks that are insurable, which involve a chance of loss or no loss, rather than speculative risks that include a possibility of either loss or gain. Insurance is fundamentally about managing pure risks.Risk is indeed defined as the chance of loss, aligning with statement B. The term 'loss exposure' in statement C refers to the condition of being at risk for a loss, which is a standard term used in the field of insurance. Moreover, D accurately describes a loss as an unplanned reduction in the economic value of something.The essential aspect of insurance is sharing risk among a group and making sure, on average, that the premiums paid do not exceed the benefits received, accounting for the imperfect information that insurers work with when assessing individual risks.