Risk Management- Personal Risk

Personal Risk:

(a) Risk of dying too soon
(b) Risk of becoming disabled
(c) Risk of incurring significant health care costs
(d) Risk of living too long (retirement issues)

Dying too soon. This risk is usually taken care by transferring the risk to a life assurance company. This is simply a risk pooling situation where those who do not die fund those who do and the insurance company collects a fee for administering the pool.

Becoming Disabled. This risk often affect your ability to work and earn income. Using current income and projecting it forward with adjustments for inflation, you may have the potential to earn in excess of $5 million in your working lifetime! Also the statistical possibility of a disability occurring to you is much higher than the risk of dying before age 65 as portrayed below:

Probability of Death and Disability

Age Probability of Death Before age 65 Probability of 90 Day Disability before age 65

25 30 35 40 45 50 55 60 24% 23% 22% 21% 20% 18% 15% 9% 54% 52% 50% 48% 44% 39% 32% 9%

Sources: Based on 1980 CSO Mortality Table, 1985 Commissioners Disability Table and McGill's Life Insurance, ed. Edward E Graves (Bryn Mawr, PA: American College, 1994).

There are a few ways to deal with this risk. The disability income insurance is available to provide a monthly benefit during periods of total or partial disablement. Critical illness insurance and total and permanent disablement insurance are available to provide a lump sum to assist with replacing income, retiring debt and dealing with additional expenses following a defined major traumatic event.

Incurring Significant Health Care Costs. There are sometimes when we are required to pay a huge amount of medical expenses especially when we are strike with critical illness. This risk can be transferred to third party such as life insurance company with nominal cost.

Living too long. This risk is dealt with in most cases by financing the risk in investment or saving plans to provide adequate retirement fund.