Insurance
The term risk management refers to a plan based business that is targeted towards identifying, assessing and prioritizing of the risk of different kinds, that may interfere or that may affect an individual or organization in an unwanted way. Therefore, once the individual or the organization identifies the risk to which they are exposed, they follow a suitable risk management plan to minimize the impact of such unwanted events from their life.
Importance of Risk Management
Important to note, be it an individual or an entity, everyone is more or less exposed to some sort of risk owing to dynamic nature of our existence in the society. In other words, though future remains uncertain, however, allowing for the fate to play its part and continuing to be exposed to risks, is an illogical way to lead life.
The concept of risk management has allowed us to identify and prioritize the risk to which we are exposed to, and the one that may have critical impact on our lives or our businesses. Therefore, by following the prudent risk management policies, an individual or the organization can at least mitigate the risk level and thus minimize the impact of such events when they occur. For instance, an individual is exposed to health risks, and by purchasing the healthcare policy, he/she can minimize their payments and in some case,eliminate the need of any payment when they face healthcare issues in the future. Similarly, an organization is most likely exposed to fire and other natural disaster risk. Therefore, by purchasing the appropriate policy, it can mitigate the impact of such risks.
Types of Risks and their management
An individual business personnel is always exposed to multiple risks. Fortunately, by following prudent risk management policies,he can mitigate those risks. Below we have discussed some of the risk faced by an individual business personnel and their management:
Property Risk:
A business entity owns property, inventory and equipment, and there is always a risk that someone might steal it or might cause damage to it. Additionally, there is also a risk imposed by natural disasters such as flood, hailstorm, et cetera. However, the business owner can mitigate such risks by buying appropriate property insurance.
Burglary Risk:
Business entities also face the risk of cash theft from the factory premises or some burglar causing petty damage to the business premises. This type of risks can be mitigated through burglary insurance.
Appropriate Insurance Coverage for Property
Even though there are many insurance coverage for the property units, but post considering all the insurance coverage available for the home owners, we believe that the Traditional guaranteed replacement cost coverage is the most appropriate one. This insurance coverage for the property units, pays the damages to the full extent, even if it is for rebuilding the entire home. The most attractive feature of this coverage is that even if the loss to the insurance is more than the original limit, the insurance company will pay for it. In many states, many large insurance companies now guarantee damage reimbursement upto 125% of the purchase limits. Therefore, with a rare probability that the building and labor cost will go up to more than 125% of the insured value of the property, this insurance coverage seems to be the most appropriate one.
Appropriate Insurance Coverage for Vehicle
If you drive, you need to insure your vehicle. However, with numerous options available, it is always necessary that an individual do some homework before purchasing the appropriate vehicle insurance coverage for his vehicle. Below we discuss few vehicle insurance coverages that should be included in the vehicle insurance:
-Collision: This is the basic coverage, which, regardless of the party at fault, provides protection to the vehicle owner with the replacement and repair of the vehicle, subject to a deduction of $500 to $1000.
-Personal injury protection: This insurance coverage covers medical and other related expenses of the insured person, who has suffered injuries from the car accident, without considering as which party was at fault.
-Medical Payments: This additional insurance coverage clause also covers the medical payments for the passenger who has been injured along with the insured person, without considering as which party was at fault.
-Bodily Injury and Property Damage Coverage: This insurance coverage pays to the affected person, who has been medically injured or whose property has been damaged by the insured person.
Uninsured and underinsured motorists liability coverage: Many a times, the insured person meet in an accident with another driver who does not carry liability coverage. Therefore, Uninsured and underinsured motorists liability coverage allows the insured person to recover any damage in case, he/she met an accident with an uninsured person
Appropriate Insurance Coverage for Life and Disability
Post considering all the options, I believe that Universal Life Insurance will be the most appropriate as not only it provides cover for life and disability risk, but is also more flexible than other insurance options available where the insurer can modify his coverge when circumstances or needs change over time.
Appropriate Insurance Coverage for Health
Post considering the available options, I would prefer to go for coverage under the insurance administered by Health Management Organization(HMO’s). Even though HMO’s are least flexible insurance plan, however, HMO’s provide wide array of services and coverage for many preventive diseases. Additionally, it is the least expensive health insurance option requiring minimal paper work.
Tax Implications
-Life Insurance
Majority of the employers pay for the life insurance of their employees. However, the tax implication is borne only by the employees. IRS allows tax exclusion for first $50000 of coverage for a life insurance policy carried by their employer, either directly or indirectly. Any payment made for coverage above $50,000 is added to the income of the employee and is then subject to social security and medicare taxes.
-Healthcare Spending
A defined percentage of the healthcare premium goes towards healthcare services vs. overhead or administrative costs, and if the insurer does not meet the specified ratio, they are required to return the rebate to the individual policyholders. Therefore, depending upon the rebate issued, tax implications are borne by the policyholders.
Personal Insurance Needs
Presently in young age, I would like to take the benefit of lower premium associated with life and disability insurance. Therefore, my first insurance coverage will be the universal life insurance that covers both life and disability risks. Additionally, I would also purchase a health insurance over the intermediate term and will increase the coverage over the time.
References
Car insurance: Policies. (2015, May 29). Retrieved May 24, 2016, from CNN: http://money.cnn.com/pf/money-essentials-car-insurance/
Health and Disability Insurance. (n.d.). Retrieved May 24, 2016, from https://www.livestrong.org/we-can-help/insurance-and-financial-assistance/health-and-disability-insurance
Home insurance: Homeowners insurance policies. (n.d.). Retrieved May 24, 2016, from CNN]: http://money.cnn.com/pf/money-essentials-home-insurance-policy/
Kuo, J. (2013, November 8). Top 5 Insurance Tax Implications for 2013. Retrieved May 24, 2016, from https://www.nerdwallet.com/blog/investing/top-5-insurance-tax-implications-2013/
Risk Management. (n.d.). Retrieved May 24, 2016, from Investopedia: http://www.investopedia.com/terms/r/riskmanagement.asp
Tom. (2009, December 9). 8 CATEGORIES OF PERSONAL RISK. Retrieved May 24, 2016, from http://www.thomasmbragg.com/2009/12/09/8-categories-of-personal-risk/
Universal Life Insurance. (n.d.). Retrieved May 24, 2016, from https://www.majesticeagle.com/for-individuals/life-disability/
