What kind of risk does a health insurance policy primarily cover?

Health insurance policies primarily cover pure risks. Pure risks are defined as risks that involve a possibility of loss or no loss, but no possibility of gain. In the context of health insurance, the risk involved revolves around the likelihood of incurring medical expenses due to illness or injury. If an individual does not need medical care, they neither gain nor incur a financial loss, but if they require care, the expenses could be significant.

This concept is essential in understanding the nature of insurance itself, as insurers provide coverage for these unpredictable health-related expenses, thereby allowing individuals to mitigate the financial impact of unforeseen medical events. In contrast, speculative risks, which involve the potential for both gain and loss (such as investments in stocks), do not align with the principle of health insurance. Similarly, operational risk and financial risk pertain to different contexts, such as risks faced by companies in their operations or financial stability, rather than personal health coverage. Hence, the focus on pure risk underlines the primary role of health insurance in providing a safeguard against the uncertainties associated with health-related expenses.