Sony KuriakoseAssistant Professor

Newman College, Thodupuzha

Peril is the immediate specific cause to loss of value to an asset.

Risk is the chance of loss or injury .It is the possibility of loss due to unpredictable happening in the future.

For example: Ships are exposed to the peril of sea like sinking, piracy, wreckage etc.

Financial risk and non-financial risk: If a risk is concerned with financial loss, it is termed as

financial risk. If a risk does not involve financial loss, it is known as

non-financial risk. For example, the unexpected demise of an efficient

manager of a company will result in financial losses to the company and hence there is financial risk from the point of view of the company. At the same time, family members of the manager have non-financial

risk more than the financial risk

Quantifiable and non-quantifiable:

The risks which can be measured are known as quantifiable risk

Non-quantifiable risk cannot be measured. For example:-Risks which leads to tension or loss of peace etc

Fundamental and particular risks: Particular risk can be confined to individuals or

smaller groups.. Example: - accidental death of a person.

Fundamental risks affect the whole society. its origin and effects affect larger number of people. Example:- Tsunami, flood, earthquake, etc

Pure risk and Speculative risks A pure risk is one which the loss

occurs by chance or not by choice. It involves no loss or chances of loss.

A speculative risk is one which the loss occurs by choice of a person. There can be loss or break even or profit.

Pure risk can be insured but speculative risks cannot be insured.

Dynamic risk and static risks: Dynamic risks arise from changes in the economic, social,

technological or political environment. They are difficult to predict.

Example: 1) Change in the economic policies 2) Total ban of tobacco may be heavy risk for a

cigarette manufacturing industry. Static risks are there occurring even if there is no change in the

macro environment. They are more or less predictable. Example: Possibility of decline in sale of a cigarette company due

to competition. Dynamic risks static risks resemble speculative and pure risks

respectively.

A wager is an agreement between 2 parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other parties’ promise to pay if the event does not happen

E.g.: If X and Y enter into an agreement that X shall pay Y Rs. 1,000 if India wins a cricket match and that X shall pay Y Rs. 1,000 if India loses the

Features? Promise to pay money or moneys worth, promise must

be conditional on event happening or not happening, Both parties should not have control over the happening one way or other, Parties don’t have any other interest in the event except money.

Insurable interest- Owner of the policy Valid Vs Void Insurance- Interested in the non happening of the

event insured All insurance contracts are contract of indemnity

(except life)- No question of indemnification Gambling Vs scientific calculation of risk and

premium based probability theory and actuarial principles

Useful to society – Not useful

Win- win situation is possible in insurance Valid Vs Void Risk sharing and risk creation Loss or no loss, loss-break even- profit Gambling Vs scientific calculation of risk and

premium based probability theory and actuarial principles

Premium, gambler enjoys risk and doesn’t want to share it.

Only one common factor?

Often used interchangeably and treated as synonyms, but the meaning and dimension of these 2 concepts are different.

Assurance is used in those contracts which guarantee the payment of a certain sum of money on the happening of a event that is sure to happen sooner or later.

Eg: Life insurance policies- Life assurance policies. Differences? Non-life Vs Life, Loss due to risk and the time,

subject matter, One year- long term contract, Indemnity, surrender, protection- protection cum investment.