Sarah, a freelance graphic designer, faces two distinct situations this month. First, she buys a lottery ticket hoping to win a large cash jackpot. Second, she worries that a sudden power surge might destroy her expensive computer equipment, causing her to lose client work.
How do insurance principles classify these two situations?
- The lottery ticket represents a speculative risk, while the potential for computer damage represents a pure risk.Answer
- BThe lottery ticket represents a pure risk, while the potential for computer damage represents a speculative risk.
- CBoth situations represent physical hazards rather than pure or speculative risks.
- DBoth situations represent examples of risk retention rather than risk classification.
Answer
The lottery ticket represents a speculative risk, while the potential for computer damage represents a pure risk.
The lottery ticket is a speculative risk because it presents an opportunity for financial gain (winning the jackpot) as well as loss (cost of the ticket). The potential for computer damage is a pure risk because there is only a possibility of loss (damage to equipment) and no opportunity for financial gain.
Step-by-Step Solution
Key Concept
Distinguishing between pure risks (insurable) and speculative risks (uninsurable).
Estimated Time:45s