Transfer Risk - Buy Insurance

Insurance is a financial product that we need to protect our assets and our dependents if we are not around to provide for them.

You're now ready to begin learning about the five areas of financial planning. The first is risk management or protecting your wealth, which is a fancy term for using insurance.

Insurance is risk protection. It is all about protecting your assets from catastrophic happenings such as death, fire, floods, disabilities, and illness. You purchase insurance to cover a possible risk that may never occur and that you hope will never occur. Most people hate to buy insurance because they think it's just money thrown away. They are buying a financial product that they are hopping never to use. To collect on the insurance, something bad must happen.

According to Webster's dictionary, "risk" is the possibility of loss, injury, or damage and includes the probability of such a loss. Risk management, then, is an understanding of these probabilities, such as the chance that you may be involved in a car accident or become disabled and never work again in your chosen profession. Recognizing and understanding your risks is the first step in your risk-management program. Next, you'll need to evaluate the risk and decide how to manage it.