General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A self-employed physical therapist decides not to buy disability income coverage and instead plans to rely on personal savings if injured. This approach is known as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The therapist is practicing risk retention (self-insurance): deliberately bearing the financial consequences of a possible loss instead of transferring them. Retention is appropriate for losses that are predictable, small, or affordable, but it can be dangerous for catastrophic risks such as long-term disability. Recognizing retention is important because it explains why some clients decline coverage despite clear exposures.
Why the other options are wrong
- B) Avoidance would mean eliminating the exposure, such as quitting the profession; the therapist keeps the exposure and simply bears it.
- C) Transfer would shift the cost to an insurer through a policy; no policy is being purchased here.
- D) Loss reduction lowers the chance or severity of loss; relying on savings does not reduce the chance of injury.
Memory hook
Retention = you are the insurer. Savings are the policy, and the bank of you is the claims department.