Unfunded Retention means you pay losses as they occur for low frequency and low severity.

Unfunded Retention means you pay losses as they occur for low frequency and low severity.

• A. No separate fund to pay for losses, you pay they occur for losses that are low frequency and low in severity
• B. Deliberate retention
• C. Funds set aside for losses
• D. Self-insurance

Answer: (A)

Unfunded retention means you pay losses as they occur without setting aside a dedicated fund. This approach works best for risks that are low in frequency and low in severity because the expected losses are small enough to be absorbed from the organization’s ordinary cash flow rather than pre-funding a reserve. Keeping a separate fund would add unnecessary cost for these small, infrequent losses, so paying claims as they arise is more economical. If a loss were larger or more frequent, funded retention or transferring the risk (for example, through insurance) would be more appropriate. The description given directly matches unfunded retention, since it specifies no separate fund and paying losses as they occur.

Unfunded retention means you pay losses as they occur without setting aside a dedicated fund. This approach works best for risks that are low in frequency and low in severity because the expected losses are small enough to be absorbed from the organization’s ordinary cash flow rather than pre-funding a reserve. Keeping a separate fund would add unnecessary cost for these small, infrequent losses, so paying claims as they arise is more economical. If a loss were larger or more frequent, funded retention or transferring the risk (for example, through insurance) would be more appropriate. The description given directly matches unfunded retention, since it specifies no separate fund and paying losses as they occur.