What is the main type of risk that insurance generally covers?

The main type of risk that insurance generally covers is pure risk. Pure risk refers to situations that present the possibility of loss or no loss, but do not provide any chance for gain. This contrasts with speculative risks, which have potential for both loss and gain, making them unsuitable for standard insurance coverage.

Insurance is designed to protect against uncertainties that could lead to financial loss, such as accidents, natural disasters, theft, or liability. Since pure risk encompasses events that can result only in loss, it is the primary focus of most insurance policies. This enables individuals and businesses to transfer the financial burden associated with these risks to an insurance provider, thereby providing them with a sense of security and stability.

The other types of risk mentioned—speculative risk, business risk, and investment risk—are typically not insurable because they involve scenarios where there is a possibility of gaining rather than merely facing loss. As a result, insurance is specifically structured around the concept of pure risk to effectively manage and mitigate potential financial losses.