18 Oct Preparing for “If” Risks and “When” Risks

Introduction

There are few guarantees in life.  We readily know of two, death and taxes.  What is the opposite of guarantees?  It’s risk.  And what is risk?  It means somebody is going to lose something, usually money.

If Risks

In the financial world we deal with two types of risk, “if” risks and “when” risks.  “If” risks may or may not happen.  Automobile wrecks, house fires, negligence lawsuits, a disabling accident, a long-term illness, or a premature death are examples of “if” risks that hopefully don’t happen.  But they do.  And they can be catastrophic.  And for every one of these risks, there is an insurance that can recapture the economic loss.  Without proper insurance coverage, a lifetime of savings and investments can be lost to the “if”.

When Risks

“When” risks occur over time, and they are seldom planned for.  Inflation of food, gas, utilities is really hitting everyone hard this past year.  Things wear out such as car tires, household appliances, clothes.  Phones, computers, even home items need replacing because new technology makes the old obsolete.  Tax laws are scheduled to change again in two years.  Stock market fluctuation is causing a lot of angst for retirement plans.  And we thought 3% mortgages were the new normal.

Your financial advisor should plan for both risks.  Insurance covers the “if” risks. Self-insurance covers the “when” risks.  How to self-insure with guarantees is the key to your long-term financial success.