Risk management is one of the most important yet least talked about issues in financial management. Even if all of us wish to grow and hold onto our possessions, we must also be aware of all the risks that can endanger our wealth. Considering the level of uncertainty that is still prevalent in the country, as well as inflation, risk of disease and life loss, it is also necessary to appreciate the different kinds of risk and insure against them accordingly. Here, we’ll explore the various types of risks that individuals should be prepared for and the means to safeguard against them.
Life Risk
The most direct risk is mortality or morbidity. Life insurance can provide your family or beneficiaries financial support in the event of death for any reason at a relatively young age. In India, different life insurance products such as term plans, whole life insurance, and endowment policies are available insuring the dependent family’s financial security. As the major breadwinner of your household, it is critically important that your life insurance coverage be adequate to cover your family’s future needs, such as living expenses, child’s education and outstanding debts.
Tip: Life insurance for at least 10–15 times annual income. This can prevent dissolution of the family.
Health Risk
Health risk, arguably at its peak priority in the context of the COVID-19 pandemic, has been all the more prominent. Medical emergencies lead to significant out of pocket expense which is rapidly becoming burdensome in an era marked by an overall trend of rising cost of medical care and disease burden. Nevertheless, healthy insurance coverage is of paramount importance to offset this risk. Health insurance plans are usually paying for hospitalizations and surgical operations and, less often, hospitalization for less severe ambulatory conditions, provided certain policy conditions are met. Critical illness plans, which will pay you a lump sum if you become severely ill for instance, cancer or similar condition, are also designed to.
Tip: Choose a Health insurance company and plan with prior condition coverage and a scope wide enough to cover family members who have a higher risk of disease.
Property and Asset Risk
Natural disaster, accident and burglary all wreak havoc at the expense of your home and possessions. Home insurance in India, a country with floods and earthquakes as well as others, which occur with some regularity, is not to be ignored. Home insurance is normally offered in cases of fire damage, natural disaster, and almost exclusively in cases of theft damage. Thus, Car insurance is a condition of accepting the risk of auto crash and damage.
Tip: Pay attention to the critical role played by proper home and auto insurance.
Investment Risk
There is always a level of risk in any investment, such as market risk, credit risk, etc. Heterogeneity in asset class portfolio available for investment in India, i.e. All equity and fixed income, mutual funds, and real estate are investible to the extent of the investor. However, understanding and managing investment risk is crucial. For example, Number of mutual funds can have varying levels of risk based on a class of assets included by a mutual fund. Equity funds are riskier but promising, while debt funds are safer but less rewarding.
Tip: Assess your risk tolerance before making investment decisions. Portfolio diversification can be a beneficial effect for mitigating, risk and market fallout.
Conclusion: Are You Adequately Protected?
Risk is inevitable in life, however, by planning beforehand, you can greatly reduce the cost of risk in regards to your own financial security. From time to time you should check your insurance, investments, savings, and coverage, to be properly covered in respect to life peripheral contingencies. The ability to differentiate between the type of risk (life, health, real estate and valuables) and taking the correct risk reduction measure according to their own and family’s interest, would be able to protect them from the unexpected financial difficulty.
