The importance of risk profiling
“Risk” implies loss or danger. It is a situation in which we are not sure when something will happen and how much we might lose. Some risks may have a big effect on individuals and their family. Risk management is crucial in life planning. It is a preventive measure to minimize potential losses.
What is risk assessment?
| 1. | Identifying: Imagine what kind of risks you may face, such as mortality, morbidity and accidents. |
| 2. | Quantifying: Envisage the consequences should a risk appear, including the financial burden on you and your family. |
| 3. | Coping: Consider ways to mitigate the risks, such as evaluating your financial resources to cover any potential losses. |
Here are some examples of risk assessment:
If you catch a cold and need to visit a private general practitioner, the medical expenses may be only a few hundred dollars; if, you develop cancer, however, would you prefer public or private treatment? If you prefer private treatment, the medical expenses may amount to hundreds of thousands of dollars, or even more. Are you confident that you could afford such expenses?
If you pass away without paying off the mortgage on your home, will your family be able to handle the debt?
If your car was destroyed in a typhoon, could you afford the repair or replacement costs?
Different ways to manage risk
To properly manage risk during your life, first identify the risks you may face in different circumstances and the corresponding impact, so that you can understand your needs and deal with the risk appropriately.
Avoidance
If you expect there to be a chance of loss, you may choose not to expose yourself. For example, you may choose not to take part in skydiving or other extreme sports to avoid exposure to the risk of death.
Prevention
If you expect some factors to result in a higher chance of potential loss, you may proactively prevent these factors from appearing by, for example, maintaining good habits such as a healthy diet, frequent exercises and regular check-ups, to reduce the chance of developing a serious illness.
Transfer
If you expect a risk to incur a potential loss, you may consider a preventive measure by transferring the financial loss incurred to a third party, such as an insurer. For example, if you think there is a risk of property damage from a natural disaster such as a typhoon, you may buy home insurance, so that the insurer assumes part of the possible financial loss.
Functions of insurance
Insurance is a risk-transfer tool. An individual who takes out an insurance policy pays a premium to transfer the risk of a potential financial loss to an insurer. The larger the expected financial loss, the more important insurance is. To deal with unpredictable risks and to ensure financial security, it is better to take out appropriate insurance as early as possible.
No one can predict the future. Without being insured, you may experience financial hardship in the event of an accident. But if you are insured before the accident, you will receive monetary compensation from the insurer to cover at least part of your costs. The earlier you take out an insurance policy, the sooner you are protected.
Lifetime risk profiling
The types and levels of risks you face will change according to different life stages and events, such as marriage, childbirth, changing jobs, and buying a flat or car. Your financial and family situation will also affect your risk-tolerance level.
Insurance is not a panacea. A single insurance policy may not suit all your needs throughout your life. Changes in life, including age, health, lifestyle, family status and financial condition, will affect your risk exposure and related responsibilities. Therefore, you should evaluate your insurance needs, review your insurance portfolio periodically, and adjust it if needed.
Insurance is not a panacea. A single insurance policy may not suit all your needs throughout your life. Changes in life, including age, health, lifestyle, family status and financial condition, will affect your risk exposure and related responsibilities. Therefore, you should evaluate your insurance needs, review your insurance portfolio periodically, and adjust it if needed.
Protection Needs Assessment
If you want to understand the impact of different life events on your current and future insurance needs and envisage the stage at which you will face the largest mortality protection gap, use the assessment tool on this website to obtain an analytical report.
Protection Needs Assessment
