General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A freelance consultant buys a disability income policy to protect against losing income if injured. In risk management terms, the consultant has engaged in:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Purchasing insurance is the classic risk transfer technique: the financial burden of a possible loss is shifted from the insured to the insurer in exchange for a premium. The consultant still faces the risk of injury, but the economic consequences are transferred to the insurance company. Transfer is one of the five main risk management techniques, and insurance is its most common form.
Why the other options are wrong
- B) Avoidance means eliminating the exposure entirely, such as quitting a risky occupation; buying a policy keeps the exposure but shifts its cost.
- C) Retention means bearing the loss yourself, such as self-insuring through savings; here the insurer bears the covered loss.
- D) Loss reduction lowers the frequency or severity of losses; buying coverage does not reduce the chance of disability itself.
Memory hook
Insurance = a handoff. You pass the financial baton to the insurer; the risk stays, the bill moves.