A family purchases life insurance so that surviving family members will be paid a death benefit if the breadwinner dies, rather than relying on personal savings. This approach to handling the risk of premature death is best described as:

Why A is correct

Transfer is one of the five risk management techniques and is the one used when an insurance contract shifts the financial burden of a potential loss to the insurer. By paying premiums, the family exchanges an uncertain large loss (loss of future income) for a certain small cost. Retention, avoidance, and reduction are other techniques but none of them describes buying insurance to have the insurer pay the death benefit.

Why the other options are wrong

• B) Retention means the individual keeps the risk and pays for losses from personal resources, which is the opposite of buying insurance.
• C) Avoidance means not participating in the loss-creating activity at all, which is not what purchasing life insurance does.
• D) Reduction lowers the probability or severity of loss (e.g., seatbelts, smoke detectors); insurance transfer does not change the loss itself.

Memory hook

Buying insurance = transferring the financial risk to the insurer. Transfer moves the money pain, not the event.