Which is an example of risk retention?
• Having deductibles
• Keeping a fire extinguisher in your kitchen
• Quitting smoking
• Starting an exercise routine
Having deductibles
An example of risk retention is having deductibles.
An example of risk retention is having deductibles.
To understand why having deductibles is an example of risk retention, let's first understand what risk retention means. Risk retention refers to the strategy of accepting or assuming the financial risk associated with a particular event or loss. Instead of transferring the risk to an insurance company, individuals or organizations who practice risk retention choose to bear the financial consequences themselves.
In the context of insurance, deductibles are the amount of money that policyholders agree to pay out of pocket before their insurance coverage kicks in. So, by choosing a policy with a deductible, the individual is, in essence, retaining some of the financial risk. They are responsible for paying the deductible amount in the event of a claim, and the insurance company covers the remaining expenses beyond the deductible.
Therefore, having deductibles is an example of risk retention because it involves assuming financial responsibility for a portion of the potential loss or damages covered by an insurance policy.