Risk Management – Do I Need It If I Don’t Do Anything Risky?

Risk Management in the context of financial planning refers to transferring risk away from us to a third party. To answer the question in the title, life is risky. Risk is unavoidable but is manageable.

Referring to the picture above, since we do not maintain firefighting equipment in our homes, other than a fire extinguisher in the kitchen, we have transferred the risk of putting out a fire to the local fire department, and hopefully, when there is a request for a donation, we will be generous – especially to the volunteer fire departments that rely on us for support.

But what about the fire damage to our home?  We should have transferred that risk to an insurance company – one who might “be there” or “be on your side” or assure us that we “are in good hands”. Whichever one you choose, you want to be sure that they will be there when you need them.

There are many other risks we need to consider transferring to an insurance company.  Some insurance to consider:  Life Insurance to provide an income stream to those who are dependent on us for support if we die while they still need our financial support.  Property Insurance to repair or replace our home, car or other expensive thing we own that we can’t repair or replace without taking a big financial hit.  Liability Insurance that pays others for damage we caused, or the court said we caused.  Disability Insurance that continues our income when we cannot work due to injury or illness. Health Insurance that will pay most of your doctor and hospital bills. Long Term Care Insurance that will provide the money to care for us when we become too frail in body, and maybe in mind, to care for ourselves.

There are many other coverages available if you have a boat, an airplane or any number of things that are not normally included in a standard insurance policy.