What is defined as the transfer of pure risk to the insurance company in consideration for a premium?

The correct answer is insurance, which is fundamentally the process by which individuals or entities transfer the financial burden of pure risk to an insurance company in exchange for a premium. Pure risk refers to situations that can lead to a loss but hold no potential for financial gain, such as the risk of property damage or health issues. By paying a premium, policyholders can mitigate the financial impact of unforeseen events by ensuring that the insurance company will cover certain losses incurred.

In contrast, speculative risk involves the possibility of both loss and gain, such as investing in the stock market, which does not fit the definition of risk transfer covered by traditional insurance policies. Exposure refers to the potential for loss or damage, and peril signifies the specific cause of loss, such as fire, theft, or health issues. While these terms are related to risk management and insurance, they do not describe the action of transferring pure risk in exchange for a premium, which is the essence of insurance itself.