Insurance and Risk Management – How to Reduce Insurance Costs by Reducing Risk
When it comes to managing the risks in your life, purchasing insurance is usually one of the best options. Having said that, purchasing insurance is not always the only option on the table. As long as you are able to avoid and reduce the risks associated with your property and health, you should be able to guard against any kind of huge disaster on your own. Insurance is always a solid option when it comes to guarding against a serious issue, but you also need to make sure that you are being smart on a daily basis. Insurance can definitely help you manage the risks in your life, but that does not mean that you should not try to prevent any of those risks from blowing up in your face in the future.
Think About Avoiding the Risk Completely
One of the best ways to manage the risks in your life is to avoid those risks completely. While there is nothing wrong with taking a chance every now and then, you also need to think deeply about the risks associated with your actions on a daily basis. You don’t need to lock yourself into your home and never have any fun, but you should definitely think twice about dangerous actions such as skydiving or auto racing if you are not willing to take on the risks associated with those actions.
When it comes down to the facts, there are some situations that should just be completely avoided if you want to stay away from the associated risks. For example, if your teenage driver is simply too immature to drive a car right now, then perhaps you should limit the number of times that they are allowed to take a drive during the week. Perhaps taking a trip to the Middle East during a time of war would also be a bad idea. If your kids are not that risk-averse when you leave them alone, then you may want to hold back on purchasing that new trampoline for them. When you are looking at the actions that you take on a regular basis, you have to think about whether or not the rewards are worth the risks that you are taking.
Reduce the Risk Instead of Completely Removing It
If you are the kind of person who is willing to take a risk or two from time to time, then you may want to look at simply reducing the risk instead of completely removing it from your life. There are some situations where removing risk completely is not going to be possible, so simply reducing the risk is going to be the best option. Whether you need to secure some silver coins that have been passed down to you from your parents or you are trying to protect some of your old baseball cards, there are certain actions that you can take to make sure that the risk associated with your property is almost completely gone.
There are plenty of different things that you can do to lower the overall amount of risk that you are facing on a daily basis. The first thing that you may want to look into is taking care of your own health. The health of your body is the base for success in the rest of your life, so working out on a regular basis and eating the right kinds of foods are two things that you should be doing. You should also avoid smoking and make sure that you get plenty of sleep on a nightly basis. When you take care of your body, there is a much lower chance that something will go wrong with your health in the near future.
When it comes to reducing the risk associated with your property, there are plenty of safety and security measures that you can use to keep yourself on the right track. Instead of insuring some of the things in your home, you may want to take better steps to make sure that everything is in a safe location. For example, you may want to get a safety deposit box at a bank instead of storing some previous jewelry in your own home. Paying for insurance is definitely one way to protect your belongings from theft or damage, but you should still take action when it comes to managing the risk associated with your assets.
Facing Your Risks Head-On
In some situations, retaining your risk may make more sense than putting some or all of it onto an insurance company. Retaining the risk is a completely voluntary action, and it can make sense for people in certain financial situations. Retaining risk will mean not getting a certain type of insurance or opting to go with only partial coverage. This will work for some people if they are insuring an item that is not worth that much money, such as an old car. It does not make too much sense to spend money on insurance every month if your property is not worth that much at the end of the day. Insurance is for high-value items that would cause a serious problem if something were to happen to them. You don’t really need to purchase earthquake insurance in Minnesota, and you don’t necessarily need to insure your old baseball card collection if it is not worth more than a few hundred bucks. You could always say that low-value items also come with sentimental value that you want to insure, but the reality is that you cannot really put a price tag on sentimental value.
Involuntarily Retaining Risk
On the other side of the risk spectrum is the fact that you could find yourself in a situation where you took on some risk that you did not even know existed. This is the kind of risk that you want to avoid because the problems that you don’t see are usually the ones that come back to bite you. For example, if you own a business and the delivery guy slips on some ice as he walks up to your door, then you could be held liable for his or her injuries in certain situations. Another example of a risk that is often overlooked has to do with rental cars. Most people just assume that their insurance covers any serious damage that takes place with the car while they use it, with hail damage being the most common problem that pops up. There are many people who are affected by these claims on a daily basis, so you need to make sure that you have all of your bases covered when you purchase insurance.
Transfer Your Risk to Someone Else
When you transfer risk, you are basically making sure that you do not have many risks in your life to worry about. Instead of worrying about whether or not you are going to pay your medical bills if you get sick, you can transfer that risk to someone else through health insurance. Insurance is the most common form of risk transfer, and insurance companies absorb the catastrophic financial problems that come your way whenever you are facing a problem related to your insurance coverage. For this service, you pay the insurance company a set rate on a monthly basis.
At the end of the day, you probably transfer more risk over to other people than you realize. While most people just think about insurance when it comes to transferring risk to someone else, the fact of the matter is that there are plenty of other contracts that you probably sign every year that involve risk transfer. Whenever you sign a lease for a new apartment or rent a car, you are probably putting yourself in a situation where some risk is actually being transferred to yourself. It is important to make sure that you always read everything before you sign it to make sure that you understand what kinds of risks you are taking when you sign something. Whenever you are renting something, you are usually going to be liable for any of the damage that comes to the rented item while you are using it. This could be a home, car, or a chainsaw from the hardware store. It’s good to be scared of the types of risks that you are taking on whenever you sign something because that means that you are more likely to look over the fine print and make sure that everything is in order.
Using the ARRT System
When you are unsure as to how you should handle some of the risks in your life, then you should take a look at the ARRT system. The ARRT system gives you the opportunity to take a look at your options when handling the risks in your life. The ARRT stands for avoid, reduce, retain, and transfer. We’ve already explained some of the finer details of each of these options, so let’s take a look at how they can work in the real world.
Let’s say you have a son and he is just about ready to get his driver’s license. There are obviously going to be some new risks brought into your life with your son on the road, not to mention all of the risks that he is going to be dealing with now. The first option you can look at when it comes to managing this new risk is to avoid it. This means that you will simply not allow your son to get a driver’s license. By not letting him drive, he will not be able to get into risky situations while he is on the road. This means that the risk of your son becoming injured in an accident is lower, and you also don’t have to worry about paying for car damages in a possible accident. The only problem with this choice is that your son is probably going to protest the idea of not being able to drive rather feverishly.
The next option on the table is to reduce the risk of injury and property damage with your son on the road. One of the best ways to make this happen is to have your son practice with you in the car for at least 40 hours. Practice makes perfect, and your son is much less likely to get himself in a troublesome situation if he has some experience on the road. You should also make sure that your son gets plenty of experience in different situations. Make sure that he gets plenty of time in places that he has never driven in the past and in different weather conditions.
Another option when it comes to reducing the risk associated with putting your son on the road is to put him in a very safe and reliable car. Whether you are going to be purchasing a car for your son or he will be saving up money on his own, it’s important to make sure that he gets the kind of car that does not become completely destroyed in an accident. A structurally safe car will lower the overall risk of injury in the long run.
If you would like to retain some of the risk involved with putting your son on the road, then you may want to pass up auto insurance. It should be mentioned that this is actually illegal in some states, but you could opt to go with a large deductible on the car insurance policy if you want to retain as much of the risk as possible.
If the other three options do not work for you, then you will want to transfer the risk associated with your son driving a car to someone else. You can give your son the car title and have him take over all of the regular maintenance responsibilities. Your teen would be a much smaller target for lawsuits since he probably does not have much when it comes to assets, but you should make sure that you look into the legal age for owning a vehicle in your state before you choose this option.