Individual Risk Management Concepts

A risk with the loss characteristics of high frequency of occurrence and low severity of loss, such as dental cavities, is best managed through risk reduction—for example, through proper dental hygiene. A risk with the loss characteristics of low frequency of occurrence and high severity of loss, such as an earthquake that destroys your home, is best managed through risk transfer. A risk with the loss characteristics of low frequency of occurrence and low severity of loss is best managed through risk retention, such as not purchasing an extended warranty on an infrequently used and relatively inexpensive item.