Definition

A plan that uses insurance and savings to guard against big losses. It mixes different tools to keep your finances secure in tough times.

What to consider

  • Understand different mechanisms available.
  • Evaluate the cost-effectiveness of transferring risk.
  • Ensure proper documentation and implementation.

Real world scenarios

  • A company shifted part of its risk by purchasing additional insurance coverage.
  • An entrepreneur used contracts and warranties as a risk transfer mechanism.
  • A business utilized reinsurance as a means to transfer risk from high-value claims.

Related terms

Insurance & Financial Protection