Risks are present everywhere, be it in business or service or general life. You need to consistently manage these risks to continue with your business or life efficiently. Here are the three ways of risk management come into play:
1. Risk Avoidance
2. Risk Retention
3. Risk Transfer
Risk avoidance refers to the act where the risk is known and significant. Thus, you can and should avoid it. For the risks, which are unknown and significant you follow the strategy of risk transfer, that is, buy an insurance cover.
Risk-retention is the method secured for all other types of risks, that is, unforeseen or foreseen but not significant. For example, risk of getting a flat tyre while on a long road trip. Although the risk is unknown, it is not as significant and you can easily manage it out of your pocket.
There are a lot of risks present in the environment and you cannot cover everything with a life insurance. Thus it becomes natural that some risks have to be retained. But how to decide the risks that can be retained? Check the following points.
1. If the cost of the risk is lower than the cost of insurance
2. If the insurance policy itself does not cover a risk
3. If you have a large emergency fund that can be used to absorb the losses