Broadly speaking, there are two types of risk:
- Speculative risks are situations in which one can either gain or lose, such as gambling and investments.
- Pure risks are situations in which there is only a chance of loss; for example, the risks of having property damage or incurring medical bill are considered pure risks, since a person cannot win–only lose in those situations.
Insurance companies only insure pure risks. Speculative risks are not insurable. For instance:
- People are not able to buy insurance to pay for their gambling or investment losses (speculative risks).
- People can buy insurance to cover their risk of being in a car accident, having property damage, incurring medical bills, or a a family losing income due to a death. These are all pure risks.