Happy mid-week all 😀
Last week, we introduced Jummai and her self-assessed risk profile. We shall now go through each of the risks she identified, and the ways she can go about managing them. For each risk, we shall look at the following risk management strategies:
* preventive – to reduce the probability of the risk occurring, and
* curative – to reduce Jummai’s negative financial impact should the risk occur; these have to be implemented before the risk occurs though, otherwise it would be synonymous with campaigning after an election 😮
This is the risk that Jummai will fall ill and (i) have to spend a lot of her salary on medical expenses; and (ii) not be able to earn her income as the illness may affect her ability to get her job done.
- Curative: purchase health insurance^ (also called medical insurance). Many employers already provide this as part of the employee benefits package. This is the case for Jummai. She, however, needs to obtain from her employer the details of what the insurance policy covers, and all relevant limits so that she understands the extent of her cover. If she thinks the cover provided by the company health insurance policy is inadequate, she should consider:
- obtaining additional health insurance coverage, either through her employer’s policy or by buying a separate policy on her own. Jummai should note that this will require her to be responsible for any additional payments to the insurance company.
- establishing and maintaining a special savings account for the purpose of funding health-related expenses not covered by the insurance policy(ies).
This is the risk that Jummai’s tear-rubber car may be involved in an accident that may, at best, result in damage to her car, another person’s car, or property. It could also result in bodily injury to herself or other people.
- go for defensive driving classes (if you have ever driven in Lagos, Nigeria or New York City, USA, you will understand 😀 )
- ensure the car goes for regular maintenance checks and procedures
- proactively check her tyres and various car fluid levels before setting out every day
- use her seat belt every time, and encourage all occupants of her car to do the same
- purchase comprehensive car insurance^ (also called auto insurance)
This is the risk that Jummai’s car or residence may catch fire, destroying assets, some of which may be difficult to replace, and some which may be outright irreplaceable.
- turn off the cooking gas supply whenever she is not cooking
- take other necessary precautionary measures while cooking
- be very cautious whenever there is a naked flame in or around the house
- take necessary precautions when handling fuels, gases, and any petroleum products, e.g. do not have a naked flame nearby or use an electronic communication equipment such as a cellular phone while filling a car/generator tank with petrol/gasoline
- install smoke alarms and water sprinklers in the house
- always have functioning fire extinguishers in strategic locations
- have a fire blanket, escape stairs, and other fire protection devices handy
- purchase home insurance^ (also called home property insurance) and auto insurance^
image courtesy fotosearch.com
This is the risk that burglars may break into Jummai’s home or car and dispossess her of her belongings.
- choice of neighbourhood: we all know some neighbourhoods are more crime-prone than others
- install security deterrents: e.g. security doors, burglary proof bars, electric fences, burglary alarms, car alarms.
- be security conscious
- Curative: purchase home insurance^ and auto insurance^
Education of dependent
image courtesy frescodata.com
This is the risk that Jummai may lose her ability to earn an income to continue funding Halima’s education, either due to a long-term illness, disability, or death.
- Preventive: the preventive measures under “Health” above would apply
- purchase disability insurance ^
- purchase life insurance^
- establish an education trust^
This is the risk that Jummai may have her employment unexpectedly terminated by her employer and not be able to immediately secure another source of income.
- Preventive: Jummai needs to be an asset to her employer by being an exceptional problem-solver that they cannot do without :).
- Curative: setup a 6- to 12-month emergency fund
This is the risk that Jummai may lose some or all the money she has invested due to a general economic downturn, or a reversal in the fortunes of the entity(ies) she invests in.
- Preventive: Even though it is impossible for anyone to prevent a general economic downturn (economic cycles are a fact of life), Jummai could optimise her investments by engaging the services of a financial planner (like yours truly 😀 ), who would advise her on the best strategies to diversify her investment risk.
- Curative: Making a financial investment is making a conscious decision to take on risk. Consequently, it is impossible for Jummai to insure herself against losing her investment should that risk materialise. However, by implementing the prevention strategy above, Jummai can reduce the loss(es) she does incur.
^ Always consult with a financial adviser so as to properly understand the terms and conditions of any insurance or financial product.
Do you have any additional preventive and / or curative risk management strategies to recommend for Jummai? Any risk exposures that she missed during her assessment? Or do you need assistance including risk management strategies in your financial plan? You could send an email to firstname.lastname@example.org, or leave a message in the comments box below.