________ means responding to risk by taking out insurance.

• A. Risk reduction
• B. Risk acceptance
• C. Risk avoidance
• D. Risk transference

Answer: (D)

Risk transference means handling risk by shifting the potential financial consequences to another party. When you purchase insurance, you’re transferring the burden of loss from your organization to the insurer. This is how insurance functions in risk management: you pay a premium to cover possible costs from events like theft, fire, or liability, rather than bearing the full cost yourself. This approach transfers financial impact rather than reducing the likelihood or the severity of the risk itself.

The other options don’t fit as well because risk reduction aims to lower the chance or impact of the risk through controls, risk acceptance means deciding to live with the risk without taking action, and risk avoidance involves not engaging in the activity at all.