What type of risk is classified as pure risk in the insurance domain?

In the insurance domain, pure risk refers to situations that can only result in a loss or no loss, with no possibility for gain. Insurance primarily deals with pure risks because these are the types of risks that insurance policies are designed to cover.

The correct response highlights that insurance itself represents a form of pure risk. In essence, when individuals or businesses purchase insurance, they transfer the risk of potential loss to the insurance company. For instance, consider homeowners insurance: it protects against losses from events like fire, theft, or natural disasters, where the outcome can only be a loss or no loss experienced by the policyholder.

Other types of risks, such as speculative risk, involve the possibility of loss or gain, which is outside the scope of insurance. Investment risk also entails the uncertainty of financial gains or losses based on market fluctuations, and liability risk, while covering exposures to legal claims, doesn't fundamentally represent the pure risk nature that the insurance context embodies in the way insurance itself does.