Every person and every business faces risk. Risk involves uncertainty that an adverse event will occur. Different people have different attitude towards the risk. For e.g. jumping out of a plane with a parachute may be risky thing to do for some and may not be risky for others who indulge in specific sports activity. A person aversion to risk is a key factor in the extent to which they will try to manage their risks.
People often think of risk as the chance of something bad happening. “Bad” and “Chance” are two key elements of risk. Bad refers to an event or outcome that is adverse and is also relative for e.g. losing more money is worse than loosing less money.
The different types of risk are summarized below
External risk includes the following
Operational / Organizational Risk includes the following
Financial Risk includes the following
Personal Risk includes the following;
There is also other kind of risk such as public risk, property risk etc.
Risk management is very crucial thing in the present scenario. It is the process of making decisions and carrying it in such a way that risk is minimized. To minimize the effect of various kinds of risk and to successfully achieve the different life goals, individual should do risk management. Risk management simply fights the risk and decreases loss.
Firstly one needs to identify the sources of property, income, liability and personnel risks from which losses may arise. It begins by taking a close look at each of the clients business operations and assess what could cause a loss.
After identifying the risk one need to evaluate the risk involved in each exposure in terms of expected frequency, severity and impact. Now when the risk is evaluated one need to try to terminate the risk by various ways such as :
Avoidance : not getting into something which has risk, it is simple but not appropriate strategy for dealing
Retention : there are certain risk which are retained but not addressed, this strategy is appropriate for risks that occur frequently but are of low severity for e.g. risk of getting tyre punctured.
Risk transfer : risk can be transferred by insurance and non insurance transfers for e.g. any contractual agreement
Loss Control : it means minimizing the severity of the losses if they should occur for e.g. relocating valuables from home to safety deposit box in banks to prevent from the risk of theft.
Once risk management program is implemented than its need to monitor to assure that it is serving its purpose effectively.
The various categories of insurance are;
. Life insurance : provides insurance benefit when person insured dies
. Health insurance (Mediclaim) : covers certain medical expenses and prescription medications
. Property insurance : pays a benefit if the property is damaged
. General insurance : includes fire insurance, loss of income insurance
Insurance is the need for everyone because everyone is exposed t some or other risk so everyone needs different kind of insurance. Let’s take up different cases and analyze their insurance needs
If the individual is single with no dependent than premature death will not impact the financial obligation of that person’s family so he does not require life insurance. He can take health insurance and other general insurance as per his requirement.
The person who is single but has dependant on him has to look forward for the following issues
If the family includes spouse and young children, an individual has a lot to think about. The individual will need to consider protecting the spouse and children if something should happen to both parents at the same time.
According to the rule of thumb insurance amount should be eight to ten times of the gross annual income of an individual. It is simple to apply and easily understood by the people.
Term plan provide life insurance protection for a specific period of time or term. The beneficiary gets the benefit if the insurer dies during the coverage period. A person receives nothing if he does not die during the term.
A whole life policy is an insurance cover against death, irrespective of when it happens. Policy holders pay the premium until his death.
This policy covers the risk with financial savings. It is most popular policies in the world of life insurance. In an Endowment Policy, the sum assured is payable even if the insured survives the policy term.
These policies have two components, expenses (including mortality) and savings like an endowment policy. The saving part is invested in the equity and debt as chosen by the policy holder and returns are based on the performance of such portfolio.
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