What is Risk Retention in Insurance? Meaning & Importance

2025-06-17

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Risks are present everywhere, be it in business or service or general life. You need to consistently manage these risks to continue with your business or life efficiently. Here are the three ways of risk management come into play:

Risk Avoidance
Risk Retention
Risk Transfer

Risk avoidance refers to the act where the risk is known and significant. Thus, you can and should avoid it. For the risks, which are unknown and significant you follow the strategy of risk transfer, that is, buy an insurance cover.

Risk-retention is the method secured for all other types of risks, that is, unforeseen or foreseen but not significant. For example, risk of getting a flat tyre while on a long road trip. Although the risk is unknown, it is not as significant and you can easily manage it out of your pocket.

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Which Risks can be Retained?

There are a lot of risks present in the environment and you cannot cover everything with a life insurance. Thus it becomes natural that some risks have to be retained. But how to decide the risks that can be retained? Check the following points.

If the cost of the risk is lower than the cost of insurance
If the insurance policy itself does not cover a risk
If you have a large emergency fund that can be used to absorb the losses

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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