Which of the following would be classified as a pure risk?

Pure risk refers to situations that involve only the possibility of loss or no loss, without the potential for any financial gain. In this context, homeowner’s insurance is classified as a pure risk because it mitigates the financial consequences of risks such as fire, theft, or natural disasters that could result in a loss. With homeowner’s insurance, the policyholder pays a premium to cover the potential loss of their property, but there is no opportunity for gain—only protection against loss.

In contrast, investing in stocks, developing a new product, and starting a new business all involve speculative risks, where there is potential for both gain and loss. These activities can yield profits, but they also come with uncertainties that could lead to financial losses, which distinguishes them from the concept of pure risk. The focus of pure risk is solely on the uncertainty of losing something valuable, making homeowner’s insurance the appropriate choice for this classification.