Utah Life Producer Practice Exam

Purchasing insurance is a classic example of the risk management technique known as transfer. This concept involves shifting the financial burden of a potential loss from an individual or business to an insurance company. When someone buys an insurance policy, they pay a premium to the insurer, which agrees to assume the risk of certain losses, such as those arising from accidents, property damage, or health issues.

By transferring the risk to the insurance company, the insured individual can avoid facing significant financial hardship in the event of an unexpected loss. This allows for greater financial security and peace of mind, as the insurance provides a safety net that addresses the potential consequences of various risks.

The other options represent different risk management strategies but do not apply directly to the act of purchasing insurance. Retention involves accepting risk and potentially using personal resources to cover losses. Avoidance entails eliminating risk altogether, which may not be feasible in many scenarios. Reduction involves implementing measures to decrease the likelihood or impact of a risk but doesn't involve the transfer of risk that occurs with insurance.