What is risk management? What options do you have to protect against risk?
The first step to the risk management process is to recognize the risks you are exposed to. From there, you explore your options to protect against the risk. The options here include avoiding the risk, reducing, accepting or sharing the risk.
One alternative to risk management is to stay away from the risk. Here, you employ strategies to avoid it from happening. An example would be you know certain lifestyles attribute to you having a probability of becoming sick, which could cause you to need medical attention and expose you to a financial loss.
With this, you avoid this type of lifestyle and behaviour from happening in the first place.
Do you feel avoidance of risk is the most desirable way within your life?
Here you employ strategies to reduce your risk and exposure to financial loss. It may include purchasing an inexpensive car to limit the financial loss due to property damage. Or, it may include having routine medical health checkups, to reduce your exposure to illness. From an accident perspective, if you like to hike, do not hike up mountains. Stay on level trails. This reduces your risk.
Yet, reducing it does not fully block your exposure to risk. If you drive, you are subject to property damage. A regular health check-up does not prevent you from an accident happening (wrong place at the wrong time?).
Do you feel that by reducing risk, this is the most desirable solution when it comesto your risk management plan?
Here, you live your life to the fullest and accept what is going to happen. You do not seek or limit your exposure to financial loss. It may be feasible if your loss is limited and minimal. But what if it’s not?
Some examples of a catastrophe from happening when you accept risk is a long term disability. While the average long term disability claim is 2.9 years, can you survive 2.9 years without an income? You accepted the risk, and now this is your option.
What about pre-mature death? Your loved one is gone tomorrow. You had no life insurance on them. Will you and your family still be able to maintain your home and lifestyle, without them present?
While some would say this is not the state or position they want to be in, for many people I have spoken to, this is their position. For some live pay cheque to pay cheque with no protection against risk, and it takes one financial disaster from happening and their world will change upside down.
You have determined you cannot avoid risk, reduce risk and do not want to accept risk. So your final alternative is to share risk by considering insurance.
Insurance protects your assets and income, from uncontrollable events beyond your control. Some examples of this include long term disability risk protection through disability insurance, critical risk protection through critical illness insurance or pre-mature death risk protection through life insurance. Within your risk management strategy, you may choose which risks are the most critical to protect, and integrate supplemental coverage against your current coverage such as group benefits. Or if you do not have group benefits, you may choose to protect the full exposure of the risk through insurance.
It is important to identify the risks that would cause serious financial disaster, and to share your risk with proper insurance protection for yourself, family and business.
To conclude, we are all exposed to risk. The question is – how do you want to protect the risk. Do you want to avoid it? Reduce it? Accept it or share it through insurance.
Helping you protect your financial health and wealth, if you have any questions don’t hesitate to reach out.