Insurance, risks can be divided into four main types;
- Fundamental risks
- Speculative risks
- Pure risks
- Particular risk.
1. Fundamental Risks: This type of risk affects the whole societyThe term society is derived from the Latin word 'socius' meaning friendship or companionship. Society is a community, nation or group of people who share the same traditions, institutions, rules and... More. Individuals have no control over their occurrence or effects because they arise out of the nature of society. The fundamental risks, therefore, are uninsurable e.g earthquakes, floods, inflation, wars, etc.
2. Speculative Risk: these are the risks which involve the possibility of either gain or loss. The outcome of the event may be beneficial or adverse. One of the differences between pure and speculative risks is that a loss to an individual in pure risks is a loss to the society, e.g theft, but in speculative risks, a loss to an individual may bring profit or gain or breakeven. Pure risks are insurable while speculative risks are not insurable.
3. Particular Risks: The Origin and consequences of this risk are out of individual decision actions. The causes and effects are personal.
Examples include fire, theft of personal property, accidental damage to a car e.t.c.
4. Pure Risks: Pure risks have two alternatives, they either result in a loss or the status quo is maintained. They are known for economic losses only. Once they occur, there is only the possibility of harm but no possibility of gain economically, examples of pure risks are motor accidents, shipwrecks, theft, etc. Pure risks are insurable because they can be predicted based on past experience and data available.
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