What term describes the transfer of risk from one to many?

• A. Insurance
• B. Speculative Risk
• C. Peril
• D. Exposure

Answer: (A)

Insurance describes shifting risk from a single person to a larger pool of people, the insurer, in exchange for premiums. By paying into a common fund, individuals transfer the financial consequences of losses to the insurer, which spreads those losses across many insureds. This pooling makes the cost of risk manageable and predictable for each participant.

Specifically, the other options don’t fit. A peril is the cause of loss, not the mechanism of transferring risk. Exposure refers to the value or situation that could be harmed, not the transfer of risk itself. Speculative risk involves the possibility of both loss and gain, whereas insurance deals with pure risk—where only loss or no loss is possible.