What type of risk involves no chance of economic gain and uncertainty about financial loss?

The type of risk that involves no chance of economic gain and uncertainty about financial loss is known as pure risk. This category of risk is characterized by events that can either result in a loss or have no effect, but do not offer the possibility of profit. For example, risks such as a house burning down, a car accident, or a natural disaster all fall under pure risk since they can lead to financial losses without any possibility of a gain.

In contrast, speculative risk involves scenarios where there is a chance of both loss and gain, such as investing in stocks or starting a business. The transfer of risk refers to strategies that allow individuals or businesses to offset potential risks, such as purchasing insurance. Self-funding is a financial strategy used to pay for losses out of pocket rather than relying on insurance, which introduces considerations of risk but does not define the nature of pure risk itself. Thus, when considering the definitions and characteristics of these types of risks, pure risk precisely describes the situation involving uncertainty about financial loss without any potential for economic gain.