Definition of Insurance and Risk Management Planning
Licensing Considerations
Compensation Considerations
Definition of Insurance and Risk Management Planning
Insurance and Risk Management Planning is the process of identifying the source and extent of an individual’s risk of financial, physical, and personal loss, and developing strategies to manage exposure to risk and minimize the probability and amount of potential loss.
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In personal financial planning (PFP), risk management and insurance planning results in clients who are aware of the range of significant risks to their financial well-being and who are adequately and properly protected from the loss that could result from those risks. Periodic reviews help clients understand that life changes, such as a job change or divorce, affect risk management and insurance coverage.
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Risk Management is much broader than the purchase of insurance policies, involving strategies such as:
· Risk avoidance—involving the elimination of a threatened financial loss.
· Risk reduction—involving strategies to minimize the amount of loss if a loss does occur.
· Risk transfer—sharing the burden of loss. This strategy includes the use of insurance to transfer some of the burden of loss to the third party insurer.
· Risk retention—involving either the acceptance of some of the economic burden of a loss, or continuing to participate in activities with risks that cannot be transferred or shared.