Question

1. Which risk management technique has been chosen in each of the following situations? (2 pts)
   1. Installing a smoke detector in your home
   2. Investing savings in T-bills rather than in stocks
   3. Deciding not to purchase collision insurance on your car
   4. Purchasing a life insurance policy for yourself

Answer 1

a).

The risk management technique used here is Loss prevention and control. Because the action reduces the likelihood of destruction due to fire.

b).

The risk management technique used here is Risk avoidance. Because T-bills are risk free investments where as stocks carries risk. As T-bills are preferred over stocks it comes under risk avoidance.

c).

The risk management technique used here is Risk retention. As collision insurance is not purchasen, it is absorbing the risk of possible collision and hence comes under Risk retention.

d).

The risk management technique used here is Risk transfer. By purchasing life insurance policy, we are transfering the risk to the insurance company which will be obliged to pay the nominee accordingly. So, it comes under Risk transfer.