Risk management is a strategy for protecting assets and people. It reduces financial losses caused by destructive events. Understanding risks and how to manage them enables you to provide better protection for oneself and your family. That’s if you have dependants.
The most common risks are grouped into personal risks, property risks, and liability risks.
Affording to cover all risks may not be feasible but understand how to obtain the best and affordable protection.
Here are four general techniques commonly used:
People can avoid risks such as not smoking or not walking through high-crime neighborhoods. Risk avoidance is practical but no person can avoid all risks.
Avoiding risks completely is not possible but reducing risks is a possible action. For instance you can reduce the risk of destruction of property and loss of life in a house by installing smoke detectors and fire extinguishers. You can also reduce the risk of theft of your household property by installing burglar proof in your house or hiring armed security personnel.
Assuming risk means taking on responsibility for the loss or injury that may result from it. Generally, it makes sense to assume a risk when the potential loss is small, when insurance coverage is expensive, when risk management has reduced risk, and when there is no other way to obtain protection.
For example, you might decide not to purchase household contents insurance. Then, if theft occurs, you will incur the costs of replacing the things stolen.
This is the most common method of dealing with risk whereby risk is transferred to an insurance company or other organization.
According to financial planners, a basic risk management plan must include measures to reduce: