Which of the following situations illustrates risk transference?

Risk transference refers to the practice of shifting the financial consequences of risk to another party. In this context, purchasing insurance for valuable assets exemplifies risk transference because the individual or business pays a premium to an insurance company, which then assumes the financial risk associated with potential losses or damages to those assets. In essence, by obtaining insurance coverage, the insured transfers the burden of loss to the insurer, thereby protecting themselves from the financial impact that could arise from unfortunate events, such as accidents, theft, or natural disasters.

On the other hand, the other scenarios—choosing not to invest in volatile stocks, increasing savings for future emergencies, and implementing better safety measures at work—do not qualify as risk transference. Instead, they involve risk avoidance or risk reduction strategies, where individuals take actions to protect themselves from potential risks rather than shifting that risk to another entity.