Identifying Financial Risks For Your Family
It is a disbelief that nothing can go wrong with oneself or one’s family and this definitely is an invitation to a danger. Risks are omnipresent and may strike any time. Financial setbacks require more time to recover than physical injury as the process involves rebuilding of one’s portfolio which is a time taking task. Financial problems come unseen and if one is unprepared it could leave your whole family in unthinkable danger.
The main aim of financial planning is to create financial assets through instruments such as mutual funds, shares, post office schemes and bank deposits to help you realize your future goals. However, unwanted events can lead to a loss of such assets or depletion of a sizeable chunk from one’s savings. Therefore, it is necessary to be aware of the risks that could impede your saving exercise.
Starting step in planning for insurance is identifying the events which may trigger financial risk. The most common risks, a family faces is to personal lives, property risks and liability risks. Let’s get a snapshot of what these three risks are and their causes.
- Personal Risk: It is the loss of income which is directly proportional to an increase in expenses. Loss of income may be attributed to job loss, physical disability or premature death.
- Property Risk: Any damage or loss to one’s living house or invested real estate property due to natural disasters like floods, earthquakes or theft.
- Liability: This involves negligence resulting in damage to someone else’s property, belongings, physical injury etc.
Risks Identified, Now What Next?
After identification of risks, next step is prioritizing it within each category on the basis of financial severity and the probability of their happenings. Also some risks may pose financial impact but their probability of occurrence is low. For e.g. a single earning member of a family with limited savings and on whom, wife and his two children are dependents will rate financial severity in case of premature or untimely death to be very high. Whereas, a well earning doctor with perfect health may rate professional liability as a greater risk.
How Risk Identification Benefits:
When you plan your financial future to meet your goals be it, long term or short term, risk identification becomes necessary. Because ignoring this, may not be met easily. So best bet is – invest in insurance. Main motive of getting insurance is to compensate the dependants or insured people monetarily in an unexpected event such as death, illness or damage to a property. Later in the future, you may reduce the risks or share part of risks or may even transfer them. One of the best way to protect against complete loss of income is having a second wage earner because family with more than one earners will be better positioned in terms of financials and well prepared for loss arising as a loss of income.