General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
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:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
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.
Why the other options are wrong
- A) Risk transfer shifts the burden to an insurer; here the employer still pays the claims below the deductible.
- C) Risk avoidance means not engaging in the activity at all; the employer still provides coverage to employees.
- D) Risk sharing spreads a risk among many parties; the employer is absorbing the deductible losses itself.
Memory hook
Retention means keep the small stuff and insure the big stuff.