 Personal Finance PowerPoint Presentation. Risk Management Strategies Overview. Get ready to get financially fit by practicing personal finance. Our insurance plans and policies are one way for us to mitigate risk. We've been talking about in prior presentations what is risk, which is a little bit confusing because it involves potential things that could happen in the future. No one knows what exactly's gonna happen in the future, but we would like to be able to define risk, categorize different types of risk, look at the likelihood of the risk happening and if it were to happen, how big of a catastrophe might it be to us and then use our tools in order to mitigate the risk. One of those tools, but not the only tool would be of course the insurance policies that we might be looking into. So risk management is an organized plan for protecting yourself, your family, and your property. So then we have the risk management methods which could include risk avoidance, taking precautions to avoid risk. We all do this to some degree. So for example, if we're trying to avoid being robbed or attacked, then we might not put ourselves in situations where it's more likely that we're gonna get robbed or around people where it's more likely that we're gonna be attacked. So we might avoid going down the dark alley at three in the morning where people tend to get robbed a lot as an avoidance type of strategy. Risk reduction, taking actions to reduce risk. So this is another thing that we might do that wouldn't be related to the insurance per se. These are other acts that we would do to reduce the risk. And for example, if you're talking about a health type of condition, we might then try to do things that would be more healthy. We might try to avoid the smoking, we might try to eat better, and so on and so forth to reduce the likelihood of us having medical type of problems. Risk assumptions, insurance company, self-insurance versus risk shifting to the insurance company. So in a risk assumption, we might assume the risk. We can also take precautions in and of ourselves. We might try to self-insure ourselves, meaning we might try to say we're gonna have our rainy day fund, but we might try to put more money away for particular events given the likelihood kind of doing the same kind of calculations that you would expect like an insurance company to do. However, it can be more difficult to do that for some kind of items, such as like a medical condition because some medical conditions can be way too expensive for any one individual typically or a normal kind of individual oftentimes. And therefore some insurance might still be necessary, but you might be able to do some kind of combination between self-insurance. You might try to say, try to get a high deductible policy or something like that and do some self-insurance against something happening and then having a lower premium. And then in the event that a catastrophe happens, that would be just devastating financially from a medical perspective and financial perspective, then you'd have the insurance that would possibly kick in. Obviously, if you shift the risk to the insurance company, that would be one of the other strategies that would be involved. Note that the shifting the insurance company is only one strategy that we would have involved here because we clearly wanna do these other strategies as well, meaning we would like to avoid being robbed or injured or something like that as opposed to being robbed or injured, even if we had insurance against it because clearly there's only financial relief that comes from the insurance, whereas whatever valuables that were robbed might have value above and beyond the insurance and just the experience can be traumatic experience and whatnot, which you can't really compensate with just dollars. So the insurance would just be one of the strategies that we would want to use, same of course with the risk reduction. The fact that we have really, we can have the best medical insurance out there, that doesn't mean that we should then start living more frivolously per se, because clearly if we were to get sick, then we're gonna have costs that can't be covered just with the dollars. The dollars are gonna help us to mitigate the problem at that point in time, but we wanna use the insurance as another tool, but not the only tool for the risk mitigation strategies. So disability, we're gonna go through the different categories now. So we got disability, the financial impact, loss of one income, loss of services for example, could be the financial impact and those are the things that you would think could be insured against. Increased expenses could happen from the disability. So if there was a disability that happened, then of course there's gonna be a whole lot of other trauma that happens that goes through the disability. So we wanna avoid disability if possible, but if it were to happen and we had insurance against it, then the insurance you would think could look at the financial impacts, loss of the income, loss of services, increased expenses. Strategies, we've got the personal resources, we've got the savings that we can basically have to help to compensate for that. Investments that can help us in the event that a disability happened, family observing safety precautions meeting, we're gonna try to avoid any kind of disabilities by taking actions to avoid a problem. So the private sector, if you're in the private sector, you could have disability insurance and in the public sector, we could have disability insurance. On the illness, so illness in other category, the financial impact if illness happened, then loss of one income could happen, catastrophic hospital expenses. So clearly illness has other costs that would be involved here. We would be bad, we would have, it wouldn't be good just to be sick, right? But we can only get compensation from something like insurance that would be in the form of generally dollars or paying off the expenses or something like that. So the loss of the income can be quantified as well as the medical expenses, which again, as you know, the medical expenses are just, could just get completely out of control given the whole weirdness of the whole medical situation and how it's paid for and everything. But strategies, we could have personal resources, health enhancing behavior. So clearly we can try to prevent being from illness by trying to be more well by just doing things that need more well that can't safeguard us completely. But clearly that could be something that we can do private sector. We got health insurance and health maintenance organizations from the public sector. We could have military healthcare and Medicare and Medicaid. So clearly we could have insurance against kind of illness that could take place, but we wanna put in some of those other strategies such as trying to prevent the illness just by living in a way that we might be able to prevent the illness would be the best way to go. Death can't prevent that forever, but you might be able to do some stuff to take it back a little while. The financial impact could be the loss of one income, loss of services, and the financial expenses. So clearly when you're thinking about death, then if the life is lost, the life is lost. We can't insure against the loss. We can't bring back the life. The insurance company is not gonna do that, but it can deal with the financial components where now you don't have an income where other people might be dependent on it, services, and then the expenses can be exorbitant with three large relation to the death itself and dealing with it. So strategies, you could have estate planning and risk reduction. Then we got the private sector. We could have life insurance and on the public sector could have veterans life insurance and social security survivors benefits. So like we would want to basically, if other people are dependent upon us, we would like to see that we can put together an estate planning or have enough to take care of our whatever responsibilities or whoever we need to take care of in the event that we die. And we can try to reduce risks and so on to not be in conditions where we're gonna die like prematurely, but then of course we can have the life insurance to help us out in situations for that capacity as well. So retirement, so the financial impact, decreased income and explained living expenses. So we could have increased living expenses, unplanned living expenses strategies. We have the personal resources. So of course, if we're in retirement, we're planning for it. We would like to have the savings, the investments, hobbies and skills planned out for retirement. Private sector could have the retirement and or pensions and on the public sector, social security, pension plans for government employees. We got the property loss. So the financial impact, if there's property loss, catastrophic storm damage to a property, so the property could be damaged, repair or replacement costs of theft. So clearly we got the financial conditions and again, property is easier for us to say, well, we can replace that with financial stuff, but even property, you might say, I can't replace my beloved thing that I lost or whatever, it's irreplaceable. It's a painting from 1827 or something if I have some painter, but all we can do is replace. So we don't want the loss of the property in the first place. We would like to avoid the loss of the property or take precautions against it personally, but if we can't, then possibly strategies on the insurance. So personal strategy, property repair and upkeep to help prevent loss. So clearly we don't want faulty wiring in the home and so on that could be more likely. We'd like to cut the trees down. We don't wanna have our whole home like up to a third of it buried in pine needles. That's probably not a good idea. So we got the security plans and then we have the private sector automobile insurance, homeowners insurance, flood insurance, which could be joint with the government and flood insurance on the public side of things as well. Liability, so financial impact claims of settlement costs. So liability insurance, someone's gonna sue you for something, lawsuit and legal expenses, those could be exorbitant and loss of personal assets and income. So strategies, personal resources, observing safety precautions. So clearly you wanna have the safety precautions in place so that someone doesn't, can't say that you're responsible for any injuries or whatnot, maintain property and private sector, homeowners insurance, automobile insurance, replacement insurance and on the public sector, there's nothing in terms of the public sector in this category. So then we have, this is just a group of what we've went over in a table format so you can take a look at it in more, in a table, personal events such as these are things that oftentimes you might consider insurance related to it. But again, you also wanna think about it in terms of the personal strategy. And unfortunately insurance kind of has the impact as well as people say, well, I'm insured, I have health insurance. So what I'm gonna do is I'm gonna be a maniac and live, I'm gonna abuse my body or something like that because I'm insured against the problem. Well, that's kind of silly because the insurance isn't going to cover the other risks. I mean, it seems kind of obvious, but the insurance can actually lead to behaviors that would be more extreme that you might have without the insurance. But clearly you want the insurance to mitigate the risk but then you also wanna make sure you're taking the personal strategy. So we've got the disability, that the events that could happen, illness, death, retirement, property loss, liabilities. We've got the types of financial impact that could happen, noting that these are not the only losses that could happen. I mean, obviously we're gonna have other losses which is just gonna be paying involved with these kind of events that happen. So we don't wanna have them happen if we can not have them happen or take precautions against them or delay them or something like that. But in the event that they do, the financial impacts are the things that we can measure and the things that we possibly could safeguard with insurance against, which isn't the only thing though. So we wanna, and then we've got the personal resources. So these are the things that we can do to try to mitigate these personal events that we want to make sure that are in place in our planning strategy. And we would like to then think about our insurance to try to shift some of the, at least the financial components and risk to the insurance company. And we have the private sector and then the public sector kind of things with regards to insurance, which there's a lot of similarity and kind of crossover. But that's the general idea.