Without the ability to afford to save, invest, and insure themselves against risks, many families struggle to translate the income they earn into wealth.
Risk in Insurance
In insurance terms, risk is the chance something harmful or unexpected that could happen. This might involve the loss, theft, or damage of valuable property and belongings, or it may involve someone being injured or loss of life.
We can’t ignore risk because of unforeseen and uncontrollable events like,
- Pandemics – Covid-19, According to Times Live about 76 % South African business lost revenue in 2020
- Disability (due to accident or illness)
- Critical illness
What are we protecting?
You, your family, your assets, etc – it depends on what is important you?
Life events which have an impact on our finances,
- Death can impact our finances if there is no plan in place.
- Retrenchment, Loss of income have a big impact on finances, it is important to have a plan in place to mitigate this Risk
- Family structure, your marital status, and dependents, such as children, parents, or siblings, determine whether you are planning only for yourself or for others as well. If you have a spouse, partner, or dependents, you have a financial responsibility to someone else, and that includes a responsibility to include them in your financial thinking.
- Health, financial planning should include some protection against the risk of chronic illness, accident, or long-term disability, and some provision for short-term events such as pregnancy and birth. If your health limits your earnings or ability to work or adds significantly to your expenditures, your income needs may increase
- Inflation has an impact on finances, when there is inflation, the prices go up. It takes more units of currency to buy the same amount of goods
The process followed to manage risk,
- Grow your skill base
- Build an emergency fund
- Multiple sources of income
- Have a financial advisor
- Buy insurance