Risk Retention
A risk management technique in which an individual or business assumes the financial consequences of a loss personally, often because the loss is affordable or coverage is unavailable.
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Practice This Concept
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:
Risk retention — 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.
National insurance concept
A small employer chooses a high-deductible health plan and sets aside funds to pay claims below the deductible. This approach is best described as:
Risk retention — Risk retention means keeping the risk and absorbing its financial consequences rather than transferring them. By choosing a high deductible and funding the first-dollar claims internally, the employer retains the smaller, predictable losses while using insurance to cover larger losses above the deductible. Retention is appropriate for high-frequency, low-severity exposures, which is exactly what the deductible layer of a health plan represents.
National insurance concept
- General InsuranceA self-employed physical therapist decides not to buy disability income coverage and in…
- General InsuranceA small employer chooses a high-deductible health plan and sets aside funds to pay clai…
- General InsuranceA small business chooses a health plan with a $5,000 deductible and buys insurance only…
- Life InsuranceA business owner decides to accept the risk that a key employee may die rather than pur…
- Life InsuranceA family decides to purchase a life insurance policy on the primary wage earner so that…
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