What are the two types of risks recognized in insurance?

In the field of insurance, the two types of risks recognized are pure risks and speculative risks. Pure risks involve situations that can result in loss or no loss, with no possibility for financial gain; common examples include theft, fire, or natural disasters. These risks are insurable because they fit within the framework of insurance principles where the insurer can predict potential liabilities accurately based on statistical data.

Speculative risks, on the other hand, include situations where there is a chance for either a profit or a loss, such as investing in stocks or starting a new business. These risks are not insurable due to their unpredictable nature and the potential for gain, which falls outside the conventional insurance model designed to cover only those risks that can be quantified and mitigated in terms of potential loss.

Understanding this distinction is crucial in the insurance industry as it informs the types of risks that can be covered by policies and the premium calculations that insurance companies use.