what is pure risk 
pure risk is a category of risk that cannot be controlled and has two outcomes complete loss or no loss at all there are no opportunities for gain or profit when pure risk is involved pure risk is generally prevalent in situations such as natural disasters fires or death these situations cannot be predicted and are beyond anyone s control pure risk is also referred to as absolute risk understanding pure riskthere are no measurable benefits when it comes to pure risk instead there are two possibilities on the one hand there is a chance that nothing will happen or no loss at all on the other there may be the likelihood of total loss pure risks can be divided into three different categories personal property and liability there are four ways to mitigate pure risk reduction avoidance acceptance and transference the most common method of dealing with pure risk is to transfer it to an insurance company by purchasing an insurance policy many instances of pure risk are insurable for example an insurance company insures a policyholder s automobile against theft if the car is stolen the insurance company has to bear a loss however if it isn t stolen the company doesn t make any gain pure risk stands in direct contrast to speculative risk which investors make a conscious choice to participate in and can result in a loss or gain pure risks can be insured because insurers are able to predict what their losses may be types of pure riskpersonal risks directly affect an individual and may involve the loss of earnings and assets or an increase in expenses for example unemployment may create financial burdens from the loss of income and employment benefits identity theft may result in damaged credit and poor health may result in substantial medical bills as well as the loss of earning power and the depletion of savings property risks involve property damaged due to uncontrollable forces such as fire lightning hurricanes tornados or hail liability risks may involve litigation due to real or perceived injustice for example a person injured after slipping on someone else s icy driveway may sue for medical expenses lost income and other associated damages unlike most speculative risks pure risks are typically insurable through commercial personal or liability insurance policies individuals transfer part of a pure risk to an insurer for example homeowners purchase home insurance to protect against perils that cause damage or loss the insurer now shares the potential risk with the homeowner pure risks are insurable partly because the law of large numbers applies more readily than to speculative risks insurers are more capable of predicting loss figures in advance and will not extend themselves into a market if they see it as unprofitable unlike pure risk speculative risk has opportunities for loss or gain and requires the consideration of all potential risks before choosing an action for example investors purchase securities believing they will increase in value but the opportunity for loss is always present businesses venture into new markets purchase new equipment and diversify existing product lines because they recognize the potential gain surpasses the potential loss 