How to Manage Risk

Floods, fire, illness and natural disasters are all risks of everyday life. Disaster is possible in the most well-ordered life. Acknowledge that risks to your livelihood exist and then determine if those risks are manageable. Insurance is one, but not the only, method for risk management. Manage risk by choosing the best method to prevent the unexpected from destroying your life. Read on to learn how to manage risk.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Notebook
• Bank statements
• Existing insurance policies
• Safety deposit box

1. Create a list all of your physical assets such as vehicles, buildings, computers, software, inventory, phones and furniture. Calculate the cost of replacing everything you own or lease. Visit online retailers to gauge the retail price of replacing your household or business assets. Write the total replacement cost for all of your physical assets on your risk management list.
2. Assess the impact on you or your business if you need to replace everything due to a disaster. Evaluate your bank statements to determine if you have the cash reserves to replace your physical assets. Investigate other community resources available to victims of disaster. Price the cost of insuring your possessions against potential disaster. Decide if a homeowner's or business insurance policy is the best method to manage risk to your physical assets.
3. Learn about your state's auto insurance laws. Purchase insurance coverage as mandated by law. Consider purchasing additional coverage after assessing the risk to your business or family if an auto accident occurs. Evaluate the cost of vehicle replacement or repair, legal action, personal injury and interim transportation costs. Balance the cost of additional insurance against the risk of financial harm to your business or family assets. Record this information in your risk management list.
4. Analyze how the death, disability or illness of you or your business partner changes the financial health of your family or business. Consider the costs associated with prolonged illness or death including funeral costs, loss of income and business disruption. Investigate life, disability and medical insurance to manage the risk of a catastrophe in your life. List the costs associated with purchasing insurance.
5. Evaluate if you or your business have adequate funds to continue operation in case of a catastrophic event. Consider the costs of replacing your office space, living space, equipment and the costs associated with interrupted production. Read existing insurance policies and check if your home office equipment is covered. Assess if your cash reserves are adequate to "set up shop" in case of a disaster. List your cash reserves and the cost of staying in business after a disaster.
6. Balance the costs associated with disaster against your ability to finance those costs. Investigate existing insurance policies, community resources and disaster relief. Think about what natural disasters your area is prone to. Evaluate what steps to take for effective risk management. Implement policies and improvements that are within your control. Acknowledge the risks to your lifestyle that you cannot control.
7. Take your risk management fact sheet to your local insurance agent. Ask for advice on how to best manage risk with your individual needs and assets. Insure against risks you cannot manage. Store your risk management notebook in a safety deposit box in case of disaster.