Risk, the uncertainty of loss or injury, plays an important part in our daily lives.
A classic example of risk management is a parent who purchases life insurance to protect his or her family against financial loss in case of premature death, disability, and critical illness.
Other examples include:
- A property owner who buys a fire insurance policy which covers fire, flood or other damages
- A car owner who buys motor insurance to provide for medical and repair bills in event of a road accident
- Anyone who buys health insurance to insure himself or herself against any expensive medical bills
Because no one can predict the future, everyone needs insurance to protect themselves against financial loss due to unforeseen events.
There are 2 major types of risk:
Pure Risk – The threat of loss exists without the possibility of gain.
If a young parent dies, it will mean a loss of income to his or her family, and with no legitimate possibility of gain.
If a person’s home is damaged in a fire, there is no legitimate possibility of gain, yet the home must be repaired.
Pure risk is the only kind of risk with which insurance is concerned.
Speculative Risk – The possibility of gains as well as losses.
People who invest their money, face the possibility of rewards for wise decisions, and losses should the decisions prove wrong.
Because risk is part of life, we must find ways of dealing with it. If you need help with Risk Management and Financial Planning, contact your trusted FLA Organization financial planner for consultation today.
