From the course: Risk Management and Insurance Planning: Designing for Client Needs

Risk and insurance dynamic

From the course: Risk Management and Insurance Planning: Designing for Client Needs

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Risk and insurance dynamic

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Before we begin on strategies to mitigate risk, let's get on the same page about what risk means in the context of our course. Risk is the probability of harm, injury, loss, or destruction occurring in the future and it can be divided into two types, speculative risk and pure risk. Speculative risk has three alternative outcomes, loss, no change, or gain. When you purchase shares in the stock market, you are taking on speculative risk. Pure risk, on the other hand, has only two alternative outcomes, loss or no change. Personal risk is a subset of pure risk and includes risk of death or disability, and And disability can be from either an accident or illness. Now what about insurance? Well, for a person to reach their financial goals, one of the main assumptions we have is that they continue to earn an income. But sometimes the financial plan does not unfold the way we want. Our financial plans can be derailed through accidents or sickness, and insurance products play a crucial role in building a financial plan that can minimize disruptions. Insurance, whether that is life, disability, or health, is an effective tool to transfer the risk of lost income associated with an illness, disability, or death.

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