General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An entrepreneur starts a new medical-device business that could either earn large profits or lose money. From the standpoint of insurability, this venture is:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Because the venture carries both a chance of profit and a chance of loss, it is a speculative risk. Insurers generally do not write speculative risks: the possibility of gain is inconsistent with the fortuitous-loss requirement and would create a moral hazard if profits were insurable. Only the pure-risk elements of the business - property, liability, or business-interruption losses - are typically insurable.
Why the other options are wrong
- B) A pure risk offers only loss or no loss; this venture's gain element makes it speculative.
- C) A physical hazard is a tangible condition that increases loss likelihood, not a risk category.
- D) The chance of business loss is a risk, not a peril; perils are causes of loss such as fire or theft.
Memory hook
A shot at profit = speculative = no insurance. Only can-lose situations qualify.