Maryland Life and Health Insurance License Practice Exam

Which of the following is an example of speculative risk?

1. Losing money at a casino

2. Investing in stocks

3. House fire

4. Car accident

The correct answer is: Losing money at a casino

Speculative risk refers to situations that involve the possibility of gain or loss and are usually voluntary choices made by individuals or organizations. In the context of the question, the correct example of speculative risk is losing money at a casino. This activity entails a calculated decision to engage in gambling, where the outcome can significantly vary—resulting either in financial loss or a potential gain. Losing money at a casino emphasizes the essence of speculative risk, as participants consciously choose to risk their money with the hope of achieving a profit. Unlike pure risks, which involve only the possibility of loss (like house fires and car accidents), speculative risks include both the opportunity for gain and the risk of loss. When considering investments in stocks, although they also can involve gain or loss, they are typically viewed within the longer-term framework of financial markets, rather than a straightforward gamble. This distinction sets them apart from the more immediate nature of gambling in a casino. Thus, while investing in stocks does involve a speculative element, the more vivid and direct example remains the act of gambling itself.