General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A small business chooses a health plan with a $5,000 deductible and buys insurance only for claims above that amount. This approach combines:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Retaining the first $5,000 of each year's claims - funded by the business itself - is risk retention. Purchasing insurance above the deductible shifts the financial burden of larger claims to the insurer, which is risk transfer. Combining a deductible with insurance is a common way to manage cash flow while capping catastrophic exposure. Insurance never eliminates the risk itself; it transfers the financial consequences.
Why the other options are wrong
- B) The business remains exposed to small losses; it has not avoided the activity or the risk.
- C) No government program is involved; the arrangement is between the business and the insurer.
- D) Risk cannot be eliminated entirely; only its financial consequences are managed.
Memory hook
Deductible = you keep the small stuff (retention). Above it = insurer takes over (transfer).