If you obtain insurance, what are you doing with the risk?

When you obtain insurance, you are transferring the risk. This means that you are passing the financial responsibility for certain potential losses to the insurance company. In essence, by paying a premium, you secure a policy that will cover you in the event of an unexpected incident or loss, thereby reducing the financial burden on yourself.

Insurance functions as a risk management tool that helps individuals or businesses ensure that significant expenses arising from accidents, damages, or liabilities can be handled by the insurer. The practice of transferring risk through insurance is foundational to financial planning and risk management strategies, allowing for more predictable financial stability in the face of uncertainty.

Other approaches to risk, such as accepting, mitigating, or avoiding it, involve either bearing the risk yourself, implementing measures to reduce its impact, or eliminating the risk altogether. However, obtaining insurance specifically allows for the shift of that risk to another party, thus making it the most accurate choice in this scenario.