Washington State Insurance Practice Exam

How is retention also known when the insured accepts the responsibility before the insurance company pays?

1. Risk Sharing

2. Self-Insurance

3. Risk Transfer

4. Risk Avoidance

The correct answer is: Risk Sharing

Retention, also known as self-insurance, occurs when the insured accepts the responsibility for certain risks before the insurance company pays. This means that the insured chooses to retain the risk and cover any potential losses themselves instead of transferring the risk to an insurance company through a policy. Option A, Risk Sharing, involves spreading the risk among multiple parties. Option C, Risk Transfer, is when the insured transfers the risk to an insurance company through the purchase of an insurance policy. Option D, Risk Avoidance, is when the insured takes actions to avoid the risk altogether. In this scenario, the insured is choosing to retain the risk, making option B, Self-Insurance, the correct answer.