Definition
Speculative Risk
Speculative risk is a situation that carries the possibility of loss, gain or no change, and is generally not insurable.
Investing in equities, gambling, or launching a venture are speculative risks: the outcome can be profit, loss or break-even. Because they offer a chance of gain and are often voluntarily assumed for that reason, they fall outside the scope of traditional insurance.
Insurance deals only with pure risk, where there is no upside, so the insured cannot benefit from the loss. Distinguishing the two is fundamental: hedging speculative financial risk is the domain of derivatives and markets, not insurance contracts.
Related terms
- Insurable InterestInsurable interest is the legal requirement that the policyholder stands to suffer a genuine financial loss from the insured event, making the contract valid.
- Pure RiskPure risk is a situation with only the possibility of loss or no loss, with no chance of gain, and it is the only kind of risk that is insurable.
- Risk TransferRisk transfer is a risk-management technique that shifts the financial consequences of a risk to another party, typically an insurer.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.