How do you determine what is at risk in your life?
Consider your assets: your home, car and other personal belongings that could be lost in an accident or disaster; your ability to earn income; and your assets that can be taken from you if you’re hit with a liability claim.
Why is risk management important?
You need enough insurance to adequately protect your assets. Anything worth earning is worth protecting, so if building your savings account, investing in real estate and buying your dream car are important to you, managing the risks that threaten these assets should also be important to you. You also need to protect your family’s well-being in the event that you can no longer provide for them as you currently are. Life insurance, disability insurance and an emergency fund will all protect you and your family from the risk of losing your income earning potential to death, disease or disability. Finally, keep in mind that your assets may be on the line if you’re sued and found liable, so insuring against liability is an integral part of risk management.
In order to manage your risk, you first have to analyze your risks and then determine what balance of the four components of risk management will work for you. After you’ve eliminated, reduced and accepted some risk, it’s vital to insure against the remaining risk in order to protect yourself, your assets and your family.