Risk management is intended to minimize financial and other losses potentially associated with risks to your assets, business, or health. Some examples of risk are personal and professional liability, business ownership, property loss, and catastrophic illness or disability. Your first line of defense is to identify your sources of risk and then to either avoid or minimize the major exposures. Your last line of defense is insurance.
Asset protection planning manages risks to your wealth. Lawsuits, accidents, property damage, and other financial risks are facts of everyday life, and asset protection planning looks to transfer the risk of these events through:
- Insurance
- Repositioning asset ownership
- Other protections available under the law
Starting and running a business carries its own set of risk exposures. Certain factors can have a huge impact on how safe your personal and business assets are from risk. These include:
- The type of business entity you choose
- The state you choose to do business in
- How you manage your business
- Your human resources
- Your taxes
Business risk management identifies your options for handling these risks.
For many people, particularly young people, their greatest asset is the ability to earn an income. While anyone could lose their job, the risk of not being able to work can be protected against with disability insurance. Similarly, life insurance can protect against financial loss when someone passes away and there are still loved ones counting on that person's income.
For many people nearing retirement, the greatest risk is that they will need to spend much more than they anticipated on health care during retirement. Certain health care plans can protect against increased medical costs, but will not protect against needing to pay for assisted living or a nursing home. Long-term care insurance can help address this risk.