Certified Financial Management Specialist Practice Exam

Which type of financial institution specializes in risk management and protection?

1. Investment Firms

2. Insurance Companies

3. Credit Unions

4. Brokerage Firms

The correct answer is: Insurance Companies

Insurance companies specialize in risk management and protection by offering products that help individuals and businesses manage financial risks associated with unforeseen events, such as illness, accidents, property loss, or liability. Their primary function is to evaluate various risks that clients face and provide policies that transfer those risks to the insurance company in exchange for premium payments. This means that when a qualifying event occurs, the insurance company is obligated to compensate the insured, thereby providing financial security and peace of mind. Investment firms, credit unions, and brokerage firms have different primary functions. Investment firms focus on asset management and investment strategies for clients, aiming for growth through investing in various securities. Credit unions are member-owned financial cooperatives that primarily offer savings accounts and loans at competitive rates, focusing more on lending and savings than on risk management. Lastly, brokerage firms facilitate buying and selling securities on behalf of clients, thus playing a vital role in market operations rather than specializing in risk protection.