Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
When a person buys life insurance, which risk management technique is being used with respect to the financial loss caused by premature death?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Purchasing life insurance transfers the financial burden of premature death from the insured's family to the insurer. Transfer is the risk management technique under which a third party, the insurer, assumes the financial consequences of a loss in exchange for premium. Avoidance eliminates the risk by not engaging in the activity; retention means bearing the loss yourself; reduction involves lowering the chance or severity of loss.
Why the other options are wrong
- B) Avoidance would mean refusing to engage in the income-earning or family situation altogether, which is unrealistic; insurance transfers rather than avoids the risk.
- C) Retention means keeping the risk and self-funding the loss, the opposite of shifting it to an insurer.
- D) Reduction lowers the frequency or severity of loss through safety measures; it does not shift the financial consequences to an insurer.
Memory hook
Insurance hands the financial risk to the insurer; you keep the risk itself but transfer the bill.