Which term is also known as self-insurance when the insured accepts the responsibility for the loss before the insurance company pays, often through deductibles or self-insurance?

Which term is also known as self-insurance when the insured accepts the responsibility for the loss before the insurance company pays, often through deductibles or self-insurance?

• A. Risk sharing
• B. Transfer risk
• C. Reduction
• D. Retention

Answer: (D)

Retention means the insured takes on the financial responsibility for losses themselves rather than transferring that risk to an insurer. This shows up when a deductible is used—the insured pays the deductible out of pocket, and the insurer pays the rest after that point. Self-insurance goes even further by funding expected losses directly rather than relying on a third-party insurer. In short, the risk stays with the insured, which is why retention is the correct concept.

Retention means the insured takes on the financial responsibility for losses themselves rather than transferring that risk to an insurer. This shows up when a deductible is used—the insured pays the deductible out of pocket, and the insurer pays the rest after that point. Self-insurance goes even further by funding expected losses directly rather than relying on a third-party insurer. In short, the risk stays with the insured, which is why retention is the correct concept.