I don’t know too many people who like to talk about insurance, except insurance agents. However, the truth is that I would not want to see you set financial goals, increase your net worth, properly diversify your portfolios and carefully manage your finances only to have all your hard work wiped out by a catastrophic event.
Everyday dreams are derailed by catastrophes such as fire, flood, theft, illness, injury, lawsuit and even death. They all happen, and they bring the potential for a second catastrophe, a financial one. If a life event would constitute a major financial loss, then you have got to figure out a way to manage that risk. Therefore, financial professionals often refer to insurance as risk management.
Here are five ways to manage risk:
Avoid risks – If you refuse to get on an airplane, you probably will not die of an airplane crash; but you will die eventually. Unfortunately, total risk avoidance is impractical, if not impossible.
Accept risk – Some risks are retained because they cannot be insured or reduced. A loss due to war is an example of an uninsurable event. Other risks are retained by choice because they are too costly to insure relative to the benefits. Self-insurance funds and high deductibles are examples of risk retention.
Reduce risk – Risk can often be reduced with preventive measures, such as fire extinguishers and smoke detectors.
Transfer risk – Obtaining insurance is the most common means of transferring risk.
Sharing Risk – This is essentially a combination of accepting risk and transferring risk.
In many financial plans, I recommend that individuals reduce exposure to financial risk and attempt to protect themselves and their loved ones against the unexpected. Without adequate protection and precautions an individual may jeopardize their family financially. I believe insurance protection is fundamental to sound financial planning. It helps to provide protection for you, for your family, for your future and your assets.
Securities offered through Associated Securities Corp., Member: NASD/SIPC. Advisory services offered through Associated Planners Investment Advisory, Inc., a Registered Investment Advisor.
For more information please contact Rebecca Robins, CFP™, CPA at 661-222-2331.