Are You and Your Family Protected?
Sometimes we get so caught up in the day-to-day, that we never take a step back to see the full picture. You may be paying your bills on time, taking care of your responsibilities, and saving, and while those are all good things, are you fully protected? Let's talk a little bit about risk management.
What is Risk Management?ðŸ’
Sometimes bad things happen, things outside of our control. Simply stated, Risk Management is about reducing the financial impact of adverse events. Some common examples include auto insurance or health insurance. Despite your best efforts to drive safely or eat right and exercise, sometimes emergency situations occur. The financial impact of these occurrences will depend on the ownership and adequacy of the proper insurance, in the case of this example auto insurance or health insurance. A lack of either of the two would cost you more if something were to happen than having the proper coverage.
When we think about Risk Management, we key in on how protected we are from personal, property, and liability risks. It's important to one's financial future that adequate protection is in place to protect your family, finances, and assets. Not having adequate protection in place can be detrimental to even the best laid financial plan. People will get insurance to protect a phone or device (a risk that could be retained) but not have coverage for those risks that could lead to catastrophic loss or dependence on someone else. To minimize risks, you either avoid the risk or minimize the risk. Insurance is a way to minimize risks.
What type of Protection do I need and how much?👀
The amount and type of insurance that an individual or family needs will depend on various circumstances. There is no one size fits all solution. What is important is to look at each of the following categories of insurance (along with tough questions to ask yourself) and evaluate the need for and quality of the insurance in place:
- Life Insurance - If you died today, is your family protected?
- Health Insurance - If you get sick, do you have health insurance to help reduce the financial burden?
- Disability Insurance - If you are injured and can no longer work, do you have an income?
- Long-Term Care Insurance - Do you have a chronic illness or disability that could debilitate you?
- Property Insurance
- Homeowner's or Renter's Insurance - Is your home protected from unforeseen events?
- Auto - Is your automobile protected from unforeseen events?
- Other Property - Is your other personal property protected from unforeseen events?
- Liability Insurance - Are you protected from claims of injuries or damage to other people or property?
You may not require each of these types of insurance, but you must have those that pertain to your situation. While we won't go into detail for each, just consider the question after each type of insurance and decide if you should research each topic further.
Once you have an adequate emergency fund, small things like appliances, electronic devices, etc. can be self-insured meaning don't buy that extended warranty on the TV, don't add the device protection to your phone bill. Take care of your property and if something happens, replace it as needed. It's more important to protect the big items, things that add up and add up fast - car accident, medical emergency, premature death, home fire - you get the point. You want to protect yourself from the high severity low frequency or occurrence risks by transferring/sharing the risk by using insurance. Again I ask, are you protected?
💫Managing Money Like a Boss is about analyzing risks, measuring severity, and identifying which risks to transfer. While it may feel pointless sometimes to pay insurance premiums and never use it, it's better to have it and hopefully not need it than to need it and not have it.💫