Therefore, the chances of something negative happening to a person which may be dangerous or unforeseen events and could lead to the loss of important investments of such person or even death in some cases leads to people ensuring their assets on the agreement of paying a stipulated premium which is worked out by both the insurer and the policyholder.
In events where risk occurs, the insurer analyses the policy which was held by the policyholder and makes payment to the policyholder the amount of money equivalent to the damage or loss but this is established on the foundation of the agreement, terms, and conditions which was adequately covered in order to compensate the loss which the policyholder may have suffered.
This kind of risk is uncertain in nature considering the event that is being considered and, in most cases, the occurrence or non-occurrence of such a long event usually may lead to either loss or profit.
This kind of risk requires a lot from the person looking at it to assume the risk therefore, it is completely spontaneous in nature.
The speculative risk is actually not insurable. It is very difficult to anticipate the result of the speculative risk because the exact amount of profit or loss is usually not known.
For instance, a person who is betting on a particular game is engaging in speculative risk because in every game (especially football) the winners are usually difficult to predict and the result usually is unknown until the end of the game and the result could be in loss or profit.
2. Pure Risk
This kind of risk which can also be called absolute risk refers to a situation where it is very obvious that the result of the risk covered will lead to the death of just the person only or worse of all, it could lead to the condition of a terrible setback to the person, but it can never under any circumstance bring any profit to the person.
This kind of risk can be insured but uncontrollable. Usually, this kind of risk falls under fire, earthquake, or other natural disasters, etc. but it is already known never to bring profit to the policyholder.
The pure risks are usually beyond the control of any human as it occurs without any human interference. Basically, there are three categories of pure risks which includes:
(i) Personal Pure risks, for example, a state of being without a job, untimely death, a state of disability, sickness, or degradation of personal assets.
(ii) Property Pure risks, for example, natural disasters or unforeseen accidents which may require spending so much time to fix.
(iii) Liability is pure risks that result from litigation from someone who claims to be unjustly treated in a way or is responsible for the loss that a third party caused.
3. Fundamental Risk
Fundamental risk has to do with the risk that arises from causes that are beyond human control. It is impersonal in nature, both its consequences and origin.
Its effect can involve an entire society or a greater percentage within a society. It happens as a result of causes within itself.
Natural disasters and hazardous circumstances fa under this category of risk as they usually happened as a result of factors beyond human control.
For example, a sudden accident on a vehicle, or a slowdown in the economy. These kinds of risks in most cases, cannot be insured.
4. Particular Risk
Particular risk has to do with the risk which stems mainly as a result of the actions or the interference of a person or group of some persons.
It affects just one person and not the whole members of a particular community also, a particular risk, in this case, is prompted by a personal level and the resultant effect of the prompting is of the same felt at a low level.
An example of a particular risk involving the interference of a person includes an accident that happened on the bus. Particular risks are also insurable and are generally the fundamental texts of the insurance policy.
5. Financial Risk
Financial risk refers to the hazard of which the outcome of the circumstance is measurable in terms of cash, when a persona engages in this kind of risk, any form of loss that may be incurred is usually measured by the persona involved in terms of monetary value.
A typical example is a situation where goods are lost in the warehouse as a result of fire or theft. This kind of risk is insurable and it is also the primary subject of consideration in insurance.
6. Non-Financial Risk
This refers to the risk in which the outcome of the incident cannot be quantified and as such, the loss cannot be valued in terms of monetary terms.
These kinds of risks are not covered by the traditional financial risk management system. In the court of living, a person may make a wrong choice or decision which may lead to some irregularities or other inconveniences. However, no matter the loss, as long as it cannot be measured in terms, it is referred to as non-financial risk.
7. Static Risk
Static risk refers to the kind of risk that never changes. This means that the risk remains constant over time and it is normally not affected by the environment in which the business operates from.
They usually stem from the mistakes or actions of humans and nature. A typical example of static risk involves a situation where the funds of the company are embezzled or diverted by the employees of the same company. This kind of risk is insurable because it is easy to estimate.
8. Dynamic Risk
This is a kind of risk that stems as a result of economic changes. Just like its name implies, the dynamic risk is quite unpredictable and because of its nature, it has the capacity to bring huge financial losses to any person who is an active participant in the economy.
Changes in a person’s income, tastes, preferences, etc. are all examples of dynamic risk and it is not easy for this risk to be insured.
Consequently, risk in the insurance has to do with the likelihood that unusual incidents will happen, and this may lead to a kind of loss to the individual or their equity.
Most of the risks are these days considered insurable by insurance companies. It is in the place of these companies to figure out the odds of the events and their effect and then calculate the re-compensation as the case may demand.