Texas Property and Casualty License Practice Exam

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Study for the Texas Property and Casualty License Exam. Prepare with flashcards and multiple choice questions, each with hints and explanations. Get ready for your exam!

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What characterizes speculative risk?

Only involves loss
Involves the potential for both loss and gain
Involves future liabilities
Does not involve investments

The correct answer is: Involves the potential for both loss and gain

Speculative risk is characterized by the potential for both loss and gain. It differs from pure risk, where only the possibility of loss exists, and no opportunity for profit is present. In speculative risks, individuals or entities engage in activities where the outcomes can vary significantly; they could either incur a loss or realize a profit. Examples of speculative risks include investments in stocks or real estate, where the value can increase or decrease over time. This characteristic of having the potential for gain sets speculative risk apart from other types of risk, particularly pure risk, which is solely concerned with adverse outcomes. The other options do not capture this dual potential for gain and loss, thereby clarifying the unique aspect of speculative risk.