Introduction to Risk and Insurance

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Risk and insurance are two concepts that are very closely related. Get an introduction to risk and insurance with help from a licensed insurance agent in this free video clip.

Part of the Video Series: Insurance & Finances
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Video Transcript

Hi, I'm Jonathan DeYoe with DeYoe Wealth Management in Berkley, California, and today we're going to talk about an introduction to risk and insurance. One of my favorite financial planning instructors early in my career, defined financial planning for me and it's really stuck with me. What he said was reduced to its essence, financial planning was the management of all the things that could go wrong in your life financially for the luxury of planning for all those things that can go right. You can kind of see that embedded in this definition is a tradeoff. In order for you to get to the place where you can invest for all those things that you want, the new house, the kids' education, ultimately your own moment of maximum freedom, retirement, you have to first take care of a lot of the risks. The problem becomes when we have a tradeoff, we have $400. We can do something with that $400. The question is do we invest that $400 or do we pay for an insurance policy with that $400. To really answer that question the first thing we have to do is understand what the risks might be. Now we all pretty much have three types of property insurance already in place. We all have an insurance on our car, we all have insurance on a house or an apartment and most of us have health insurance and we know that if we're in a car wreck we might involve some health insurance, we might involve some car insurance to get the car repaired and if we ever have something stolen from our house or some damage to our house from you know, some act of nature, then we have insurance that we can approach to help us fund those issues. When we embark upon a financial planning process, we realize there are three other risks that we can insure. The biggest risk is I might not be here tomorrow to provide an income for my family. That might be because I get hit by a bus and I perish, I die, in which case life insurance covers that risk. The other option is I get hit by the bus and I don't die and I end up not being able to work and provide my family with the income that they've come to rely on. That's when disability insurance comes in. The final type of insurance you might run into when you're doing a financial planning process is long term care insurance. Now usually we think of long term care insurance as nursing home insurance and what that means is when I get really old or you know, I lose my mind, experience dementia, then I'll have somebody that can take care of me in a nursing home environment. But really, there are other opportunities to use long term care insurance. Long term care insurance covers care when we can't feed ourselves, walk around, use the bathroom ourselves, bathe, and the like. These are called activities of daily living. Now if you can't do two of these activities of daily living, you may qualify to reap the benefits of long term care insurance. Now usually when we have clients reach 40 or 50 years old we start looking at this because that's the nursing home care insurance but I've had a 35 year old client who happened to also be a long term care insurance salesperson who had a policy, she was in a car wreck and she was in a cast from her ankle to her shoulder. So the issue there is she can't walk around, she can't cook, she can't clean, she can't dress herself and so she needed help in her house to take care of her even though she was really young. So there is an opportunity to use this type of insurance when you're young even though we don't usually you know, talk to people about it until they're in their 40s and 50s. Now your insurance needs will vary widely depending on your health, your personal circumstances, your financial needs, even depending in part on your geography. I live in the bay area, I insure for earthquakes. So no matter what, we have to recognize that in order to get to all those luxuries in life, in some of the cases, school, having a great retirement, maybe buying a bigger house, to get to those things we're all going to go through difficult times and sometimes insurance can be a help in those times. I'm Jonathan DeYoe, DeYoe Wealth Management in Berkley, California. Thanks for listening.

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