Before you can participate in the complex risk-management process, you need to have a general understanding of the concept of risk itself. In very broad terms, risk is the possibility of harm, injury, loss, danger, or destruction. Most risks come from someone or yourself. Risk can be further subdivided into two basic types: speculative risk and pure risk. Speculative risk has the potential for either gain or loss, much like the financial risks you assume when you put your money into certain investments. Pure risk, on the other hand, has no potential for gain; it can only result in loss or no loss. Most of the risks to which you are exposed in your life are pure risks. An example would be the risk of an accident each time you drive your car. The worst possible outcome is that you will be involved in an accident, while the best-case scenario is simply that you will have an uneventful, accident-free trip.
All pure risks exist because of various dangers known as perils. Perils are the actual, direct causes of loss and include death, disability, illness, fire, theft, and accident, among other things. In contrast, hazards are acts or conditions that could increase either the severity of a loss or the chances of a loss happening in the first place. A simple example will illustrate the distinction between a risk and a hazard:
Ex) Say you leave a cigarette burning in your living room. It falls to the floor, the rug catches fire, and your house (along with all the property in it) goes up in flames. Fire was the peril that directly caused the loss in this case, while the unattended cigarette was the hazard that increased the likelihood of a fire occurring
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