·
What is Risk Management?
People are
exposed to risk in every aspect of their lives. Risk Management in practical
terms can be defined as the process by which we identify risks and control
theme so that we are able to achieve individual goals.
·
The Risk Management Process
The six steps of
this process are:
1.
Develop Objectives, objectives
determine the scope of the risk management process
2.
Establish Exposures, each area of
household assets has its own risk, so..we can separate them into into financial
and nonfinancial assets
3.
Identifiy Available Risk
Management Tools, are avoid risk, reduce risk, reduce potential loss, retain
risks, diversify, transfer risk, sharing risk, and other methods of handling
risk
4.
Match Appropiate Risk Management
Tools to Exposure
5.
Implementation, talking the action
step
6.
Review, risk management exposures
can change
·
Insurance! What it is?
Insurance is a method of transferring
risk. Risk is shifted from the person exposed to it to the insurance company
that assumes the risk for a fee. The process by which an insurance company
agrees to assume the risk in return for a projected profit is called insurance
underwriting.
Insurance companies have overhead
costs to maintain and grow their businesses, pay
out claims, and earn a profit. These costs are built into the price of
insurance policies. As a practical matter, insurance companies have incomplete
information, in other words, they may have
less knowledge about future claims than applicant for an insurance policy. Search
costs, these are costs that the person desiring to
be insured undertakes to find out which policy is best. And insurance companies
should pay attention to behavioral factors some academic evidence suggests that humans may not always act
efficiently in risk management activities.
·
Types of Insurance Policies
The three major
types of policies are: private personal, private property, and government
insurance.
·
Analyzing an Insurance Company
An important
factor in selecting among insurance policies is the quality of the company that
offers the policy. The criteria to consider are: financial strength, good operating sense, service, price, other
consideratrions.
·
Life Insurance
Life insurance is traditionally used to provide money that compensates for the
death of a household wage earner.
Every life
insurance police is made up of several parts, which
determine the price you pay for the policy. They include mortality
charge, investement return, and overhead expense.
Life insurance is taken out to cover a need, the death of an
income earner. We can view the amount of
insurance needed using three different approaches: income
replacement, life insured needs, and partial replacement.
And last, There are 5 major types
of life insurance : term, whole
life, universal life, variable life, and variable universal life. (TEXTBOOK FINANCIAL PLANNING-L.J ALTFEST chapt.10)
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