Risk Management

Transfer risk to insurance company

The idea of risk transfer forms the basis of most insurance policies. Although you can never eliminate or remove risk altogether, an insurance contract allows you to shift the risks associated with premature death, disability, automobile repair or health issues to your insurance company. Being a large institution, an insurance company is in a much better position to shoulder the individual risks that you could not cope with by yourself. The company assumes the risks of many different individuals and is therefore able to take advantage of the law of averages through risk pooling. Over the course of a given year, it collects a great deal of money in premiums and then pays the benefits for the few policyholders who need it. The company generates profits this way, while you minimize your personal risk by sharing it with the company's many other policyholders. (This concept is known as the "Law of Large Numbers".)

Examples:

Life Insurance

Life insurance is designed to help you protect the people you care about and the long term goals that are important to you. There are certain things we want to make sure are taken care of even after we are gone. The passing of a primary income generator can leave a spouse, children and others struggling to pay the bills. There are two main ways to determine the amounted needed; Needs analysis and income replacement. Needs analysis is calculating how much will be needed to cover costs such as funeral cost, daily living expenses of survivors, education cost or perhaps a spouses retirement. Income replacement is calculated simply by figuring out how much income would be expected over the covered person’s life time.

Long Term Care

Long-term care can protect your family, your goals and your assets. Think about if you end up in a situation where you need assistance with the basics of life, as many Americans do at some point. To hire qualified care givers could eat through a life savings within a few years. The cost involved could be devastating to your assets. If the state takes care of you, they can sell your assets and you become a number with questionable personal care. The state can even sell some of spouse’s assets. If you do get back on your feet you may have nothing left. You can’t give away assets, look back rule. Nothing left for beneficiaries. Long-term care allows you to offset much of this risk by paying a premium to cover these cost in the future.

Independence

Most people don’t like the thought of having to rely on family and in some cases feel like a burden if the time comes when regular daily activities become difficult. You can have a trained professional take care of you where you feel comfortable, at your home or a faculty that you feel comfortable.

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