Which of the following describes the act of insuring a risk against possible loss?

• A. Risk transfer
• B. Risk retention
• C. Risk avoidance
• D. Risk pooling

Answer: (A)

Transferring risk to another party through insurance is risk transfer. By buying insurance, you pay a premium to have the insurer take on the financial consequences of a covered loss. If a loss occurs, the insurer pays or indemnifies you, reducing your own exposure to big out-of-pocket costs. This is different from keeping the risk yourself (risk retention), avoiding the activity that creates the risk (risk avoidance), or spreading the risk across many people (risk pooling), which doesn't involve shifting the obligation to pay for a loss to a single insurer in the same way.