Which term describes a complete retention plan where risk financing is accomplished by maintaining access to funds rather than purchasing an insurance policy?

Which term describes a complete retention plan where risk financing is accomplished by maintaining access to funds rather than purchasing an insurance policy?

• A. Self-Insured Risk Financing Plan
• B. Separation
• C. Risk Financing
• D. Risk Management

Answer: (A)

The concept being tested is funding risk by retaining it internally rather than buying insurance. A self-insured risk financing plan means the organization deliberately funds losses from its own resources instead of purchasing an insurance policy. It’s a complete retention because there is no transfer of risk to an insurer—the plan relies on internal funds, reserves, or lines of credit to cover claims as they occur. This approach requires solid financial strength, careful budgeting, and active loss management to ensure enough funds are available for potential claims. Separation, by contrast, is about physically or functionally dividing assets to reduce exposure, not financing losses. Risk Financing is the broader category that includes both retention and transfer methods, whereas Risk Management encompasses the whole process of identifying, evaluating, and controlling risks, not just how losses are financed.

The concept being tested is funding risk by retaining it internally rather than buying insurance. A self-insured risk financing plan means the organization deliberately funds losses from its own resources instead of purchasing an insurance policy. It’s a complete retention because there is no transfer of risk to an insurer—the plan relies on internal funds, reserves, or lines of credit to cover claims as they occur. This approach requires solid financial strength, careful budgeting, and active loss management to ensure enough funds are available for potential claims.

Separation, by contrast, is about physically or functionally dividing assets to reduce exposure, not financing losses. Risk Financing is the broader category that includes both retention and transfer methods, whereas Risk Management encompasses the whole process of identifying, evaluating, and controlling risks, not just how losses are financed.