Life & Health Insurance Practice Exam 2025 - Free Practice Questions and Study Guide

Risk avoidance involves taking steps to eliminate exposure to a particular risk entirely. Refusing to participate in a risky investment is a clear example of risk avoidance because it entails actively choosing not to engage in an activity that has the potential for financial loss. By opting out of the investment, an individual avoids the possibility of losing money associated with that risky venture.

In contrast, the other options represent different risk management strategies but do not exemplify risk avoidance directly. Eating a balanced diet promotes health and may reduce certain health risks, but it does not eliminate them entirely. Purchasing insurance is a way to transfer risk rather than avoid it, as it provides coverage against potential losses rather than completely avoiding the risk itself. Similarly, investing in a diversified portfolio spreads risk across different assets but does not completely eliminate the risks associated with investing. Thus, refusing to participate in a risky investment stands out as a definitive action to avoid risk completely.