What it Means

Risk retention is when you accept and keep the risk yourself instead of avoiding, reducing, or transferring it.

In other words, you decide to pay for any loss from your own money if it occurs.

It is also called “self-insurance” because you set aside funds to cover possible losses.

Examples

• Small everyday losses:
• Paying out of pocket for minor medical expenses instead of buying insurance with a high premium.
• Bearing the cost of small repairs on your own vehicle or gadgets.
• Business contingency funds:
• A company creates a reserve fund to pay for small damages or disruptions instead of insuring them.
• Deductibles / Co-pays:
• In health or motor insurance, you agree to pay a part of the loss (the deductible), while the insurer pays the rest. This is a form of partial risk retention.

Why It’s Important

• Cost saving: Buying insurance for very small losses may cost more than paying for them yourself.
• Flexibility: You control how the funds are used and invested.
• Encourages risk awareness: When you keep some risk, you become more careful about preventing losses.

How to practice Risk Transfer

• Identify which risks are small or manageable (low probability or low loss amount).
• Set aside a contingency fund or budget for these risks.
• Use partial retention through deductibles and co-pays in your insurance policies.
• Review regularly – as your financial position or risk exposure changes, adjust how much risk you retain.