The Importance of Risk Management

villaNOVA Insurance Partners offers risk management in Wayne, PA. We understand how important risk management is to both small and large organizations, and we want to make sure you are well-informed so you can make smart decisions about risk management for your business and your personal finances. We’ll go over what risk management is and the reasons why it’s important you have a risk management process in place below.

Defining Risk Management

Risk management is the process of developing a strategy that helps you avoid losing money when something unexpected happens. If you work in corporate finance, a risk management plan could be a succession plan that would go into effect when a key stakeholder of the company leaves or can’t perform their duties as they once did.

However, in the personal finance sector, there are dozens of different situations where you could encounter financial hardships that you want to have a risk management plan in place for. The planning process itself is risk management. The primary objective of this planning is to protect your dreams, goals, personal well-being, and finances from life’s “what ifs.”

There are four general types of risk to plan for. They include:

  • Pure Risk – Pure risk is a type of risk that is only possible if the event itself actually occurs. One example would be your business flooding. It either will flood or it won’t flood, and there is no in-between. You can usually insure pure risk.
  • Speculative Risk – Speculative risk is on the other end of the spectrum. This type of risk can result in a loss, gain, or no change whatsoever. One great example of speculative risk would be making a capital investment for your business. It may or may not pay off so you’re taking a risk by investing.
  • Income Risk – Just as the name tells you, income risk directly impacts your ability to generate an income. While this could be a broad range of things, some of the most common examples of income risk include loss of work, death, becoming disabled, and outliving your income-producing assets.
  • Expense Risk – Expense risk is a slightly more complicated area, but you essentially spend more money than you have. It encompasses both involuntary and voluntary spending. One example of a voluntary expense risk is simply living beyond your means and choosing to spend more money than you have. An involuntary expense risk is an emergency that forces you to spend money you don’t have.

The Importance of Risk Management

Now that you know the different areas of risk that you have to plan for, we’ll go over why risk management is vital for yourself and your business. They include:

  1. Risk management helps you plan and prepare for life’s unexpected events. While it’s not possible to plan for everything life throws at you, you can try to minimize the impact when it happens.
  2. It can protect your family in the event that anything happens to you. This could include unemployment, death, disease, or an accident. Your family won’t end up with financial hardships or extreme debts thanks to your risk management plan.
  3. Finally, risk management can help to protect your financial status. If you have a plan in place to handle unexpected financial situations, it won’t leave such a hole in your finances. Instead, you’ll be able to ride it out.

Contact villaNOVA Insurance Partners Today!

If you need risk management in Wayne, PA, get in touch with our staff. We’re ready to help you get a risk management plan in place today!