Most Financial advice is about Gain but Life is full of uncertainties. Adverse events sometimes happen and destroy even the best of financial positions. Such uncertainties translate into Risk.

So, Risk is basically the possibility of Loss. It represents the uncertainty around whether loss will occur and perhaps when and how. People experience low level of Risk Daily but they realise the impact of Risk only when a significant event occurs leading to devastating results.

People move ahead in their life with an assumption that income will continue to grow and assets will increase but when income stops and assets are destroyed due to unfavourable conditions, the hopes of living better life ends.

Risk management therefore is an important area to consider while progressing in life. Risk can be managed by following certain rules and applying certain techniques.

The basic rules of Risk Management

1. Always consider the odds
2. Don’t Risk a lot for a little
3. Don’t Risk more than you can afford to lose

The basic Risk Management Techniques

1. Risk Avoidance – Not doing things that expose one to Risk.
2. Risk Reduction – Employing strategies to reduce the likelihood or the severity of loss.
3. Risk Retention – One can afford and decided to bear the loss.
4. Risk Transfer – Transfer the Risk to a third party for the cost.

When the possible impact of loss is low one can use first three techniques but when the possible impact of loss is severe Risk Transfer is the widely used technique and Insurance is a typical example of Risk Transfer. The client enters into a contract with an insurer whereby the Risk of loss is transferred to the insurer for a cost (premium) that is relatively affordable.

Some of the severe Risks which are not uncommon are

• Risk of premature Death
• Longevity Risk (outliving your retirement money)
• Health Risk (declining health, making one uninsurable or a significant hospital bill is potentially devastating loss.)
• Risk of unemployment
• Risk of Disability
• Property Risk
• Liability Risk

In India we have different types of insurance covering various Risks, some of the popular types of insurance available in India are Life Insurance, Health Insurance and Personal accidental insurance.