ACE Health Coach Certification Practice Test

Securing an insurance policy to cover potential liability is an example of which approach to managing risk?

1. Avoidance

2. Transfer

3. Reduction

4. Retention

The correct answer is: Transfer

Securing an insurance policy to cover potential liability exemplifies the transfer approach to managing risk. This method involves shifting the financial burden of a potential loss from an individual or organization to a third party, typically an insurance company. By purchasing insurance, the individual or organization pays a premium, which allows them to mitigate the financial impact of potential risks, such as accidents or unforeseen liabilities, should they occur. While other approaches involve different strategies—like avoidance, which seeks to eliminate risks entirely; reduction, which aims to lessen the severity or likelihood of risks; and retention, where individuals or organizations accept the risk and prepare to manage it themselves—transfer specifically addresses the financial aspect through the use of insurance. This makes it a key strategy for managing risks in various contexts, including health coaching, where liability exposure may exist.