What is a major risk retention example in life insurance?

In the context of life insurance, a major risk retention example involves accepting some aspect of the financial risk associated with insurable events. When individuals or entities choose to retain risk, they decide to bear some or all of the financial consequences that arise from potential losses instead of transferring that risk through purchasing insurance.

By accepting a certain level of financial risk, the insured is essentially acknowledging that they will handle the fallout from potential events rather than relying entirely on an insurance policy to cover those costs. This could manifest as maintaining a high deductible, where the policyholder agrees to pay a certain amount out-of-pocket before insurance kicks in, or simply not taking a policy for certain risks, knowing they will assume responsibility for losses themselves.

In this framework, retaining some risk can be a strategic choice, as it might allow for cost savings on premium payments, particularly if the individual assesses their overall risk tolerance and financial situation. This understanding is crucial for developing a comprehensive financial plan that includes life insurance as one component of managing personal and family risk.