IREM Certified Property Manager (CPM) Practice Test 2025 - Free CPM Practice Questions and Study Guide

The concept of transferring risk through insurance is a fundamental principle of risk management. This approach is centered around mitigating potential financial losses that may arise from specific risks by shifting the responsibility of those risks to an insurance company. When property managers purchase insurance policies, they effectively transfer the financial consequence of certain risks—such as fire, theft, or liability—away from themselves and to the insurer.

This risk management strategy allows property managers to operate with greater security, knowing that they have coverage in place to help manage costs associated with unforeseen events. The insurance company assumes the risk, and in return, the property manager pays a premium. This means that while the risk still exists, the financial burden of that risk is lessened as it is tackled by the terms of the insurance policy.

In contrast, the other approaches, such as avoidance, control, and retention, involve different methods of risk management. Avoidance seeks to eliminate risk entirely, control focuses on reducing the likelihood or impact of the risk, and retention involves accepting the risk and budgeting for potential losses. Therefore, transferring risk through insurance distinctly aligns with the definition of risk transfer, underscoring why it is the correct answer in this context.