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:

Why A is correct

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.

Why the other options are wrong

• B) Avoidance would mean eliminating the exposure, such as quitting the profession; the therapist keeps the exposure and simply bears it.
• C) Transfer would shift the cost to an insurer through a policy; no policy is being purchased here.
• D) Loss reduction lowers the chance or severity of loss; relying on savings does not reduce the chance of injury.

Memory hook

Retention = you are the insurer. Savings are the policy, and the bank of you is the claims department.