Risk transference refers to...

• A. The risk is redistributed to multiple parties
• B. The risk is eliminated
• C. The risk is increased
• D. The risk is transferred to an insurance company

Answer: (D)

Risk transference is moving the potential financial burden of a loss from one party to another through a contract. In health insurance, you transfer that risk to the insurance company by paying a premium; the insurer agrees to cover eligible medical costs up to the policy limits. The risk isn’t eliminated or increased; it’s shifted so the insurer bears the cost of covered losses. While insurers pool risk from many customers, the defining idea is that the financial responsibility for losses is transferred to the insurance company.