CNX-001 · Question #65
A company is expanding operations and opening a new facility. The executive leadership team decides to purchase an insurance policy that will cover the cost of rebuilding the facility in case of a…
The correct answer is C. Risk transference. Risk transference means shifting the financial burden of a risk to a third party - most commonly through insurance. By purchasing an insurance policy, the company is not eliminating or reducing the risk of a disaster, but rather transferring the financial consequence to the…
Question
A company is expanding operations and opening a new facility. The executive leadership team decides to purchase an insurance policy that will cover the cost of rebuilding the facility in case of a natural disaster. Which of the following describes the team's decision?
Options
- ABusiness continuity
- BDisaster recovery
- CRisk transference
- DMemorandum of understanding
How the community answered
(28 responses)- A4% (1)
- C93% (26)
- D4% (1)
Explanation
Risk transference means shifting the financial burden of a risk to a third party - most commonly through insurance. By purchasing an insurance policy, the company is not eliminating or reducing the risk of a disaster, but rather transferring the financial consequence to the insurer. Business continuity (A) refers to plans and processes to keep operations running during a disruption. Disaster recovery (B) refers to the technical procedures to restore systems after an incident. A memorandum of understanding (D) is a non-binding agreement between parties, not a risk management financial instrument.
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