Written By: Jennifer Cox Mann, Relationship Manager & Insurance Coordinator
While risk mitigation may not have seemed as necessary when you were in your 20s, it becomes increasingly important as you near retirement. With time, you will want to ensure the security of your wealth, retirement funds, health, estate, and your children’s inheritance. However, this does not mean that you can completely avoid risk. In fact, risk is a necessary part of life, especially when it comes to your finances. Consequently, 100% risk avoidance is nothing more than a pipe dream.
That said, there are risk mitigation strategies that can greatly reduce the burden of risk in your life. Risk acceptance allows you to recognize the gravity and potential consequences of risk, giving you the ability to protect yourself in advance. Though it is not the only tool at your disposal, insurance should function as the basis of any quality risk mitigation plan. So, what is risk mitigation insurance and how can it work to provide you with a more stable, secure future?
Risk Mitigation Through Insurance
By default, insurance is designed to protect you against risk. With most types of insurance, you purchase a plan, pay your monthly or annual premiums, and you are then “protected” against different circumstances or events that might occur. For example, most states require you to have some form of liability or collision coverage if you own and operate a vehicle.
With auto insurance, you pay a premium and, if you get in an accident, the insurance provider will help cover some or all of the costs related to damages, injuries, or even death. Without some form of auto insurance, you leave yourself vulnerable to financial ruin every time you get behind the wheel (to say nothing of the legal implications). This is just one example, but it shows how insurance can function as a relatively small investment that could protect you against potentially disastrous consequences.
What Types of Insurance Maximize Risk Avoidance?
Virtually every type of insurance can help improve your risk avoidance and strengthen your risk mitigation strategy. That said, there are some forms of insurance that are essential for protecting you, your assets, and your family’s future. These policies can help you better control risk and profit for the future, as well as your physical and mental well-being:
Health insurance is by far the most important type of insurance you can acquire to protect yourself against risk. Even if you are extremely healthy, you will inevitably need to seek out medical care. Without insurance, the cost of this care can skyrocket. For this reason, it is best to get a comprehensive policy that covers routine doctor’s visits, inpatient and outpatient care, emergency treatment, prescription drugs, and medical equipment.
Term Life Insurance
Term life insurance protects you for a set period of time. You can choose the length of your term life plan when you purchase your policy. If you outlive your policy, you usually have the option to renew it or purchase a new policy. Either way, term life insurance is generally far less expensive than whole life insurance, and it ensures that your family and heirs receive a healthy nest egg when you pass on.
Long-Term Disability Insurance
If you are still working, you should most likely protect yourself against injury. One day you could be perfectly capable of performing your work duties, and the next you could be facing a disability that prevents you from earning your regular income. Long-term disability insurance allows you to maintain a stable income, even in the event of a sudden and unforeseen disability.
Long-Term Care Insurance
Many healthcare policies include some form of long-term care insurance, but some do not. Consequently, some people may benefit from acquiring a coverage plan to help you pay for long-term care if and when you experience physical or mental decline. Since most people will need some form of long-term care late in life, this type of insurance is often valuable for risk mitigation.
As previously mentioned, auto insurance is required (to one degree or another) throughout most of the United States. However, the minimum required coverage will not always provide substantial risk mitigation. As a result, it is best to acquire a more robust auto insurance plan that provides ample coverage and protection against collisions, theft, and other types of damage or loss.
Homeowners or Renters Insurance
Risk contingency is especially important if you own large assets like real estate. If you own a home, you need to acquire homeowners insurance to help maximize your risk mitigation strategy and protect your investment from unpredictable damages. Similarly, if you rent a home, apartment, or commercial property, you will want to have renters insurance so that you will not be responsible for 100% of the costs associated with damages, injuries, or theft on the property.
Identity Theft Protection
The last form of risk management insurance that most people require is identity theft protection. These days, you can have your personal financial data stolen due to a data breach at a company or banking institution that stores your information. Naturally, this is almost completely outside of your control, but it can have devastating effects on your financial future. Thus, purchasing a plan to help you rebuild and repair your finances after identity theft can greatly mitigate risk in your life.
Devising a Risk Mitigation Plan By Conducting a Stress Test of what could happen with Merit
Are you in need of a strong risk mitigation strategy? Are you looking for the best risk management insurance to meet your needs and protect your future? For professional help with risk avoidance and navigating the risk management process, be sure to contact Merit Financial Advisors today!
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent.
This article is intended to assist in educating you about insurance generally and not to provide personal service.
Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Merit Financial Group, LLC, an SEC-registered investment adviser. Merit Financial Group, LLC and Merit Financial Advisors are separate entities from LPL Financial.