bubble figure ticks the boxes for an employee benefit checklist completed with all items ticked - financial risk management questions all okay

Financial risk management engages the financial risk manager in deciding whether to accept the risk, mitigate its effects, or outsource its consequences: here are some thoughts for the risk manager’s consideration.

If you become ill or suffer an accident that takes you away from earning your usual income at the same rate as you currently enjoy, how long could you maintain your current lifestyle and continue to meet your ongoing commitments?

If you or your ‘significant other’ suffer an accident or illness that permanently incapacitates you, how long could you sustain your current lifestyle and continue to meet your ongoing commitments?

If you or your ‘significant other’ were to unexpectedly die earlier than at ‘normal life expectancy’, would the survivor and any financial dependants (children, aged parents etc) be able to sustain a lifestyle and realize their potential – and maintain their current lifestyle?

After considering the above questions, provide Yes/ No answers to the following questions:-

  1. did you answer ‘Not sure’ or ‘I don’t know’ to any of the three ‘If’ questions above?
  2. do you have any concerns sparked by the ‘serious considerations’ tabulated below?
  3. do you have concerns as to how to rectify any shortcomings in your planning in relation to these matters?

Those financial risk management options:

Accepting the risk

If you accept the financial risks of life, you are prepared to accept the costs (and lost opportunities) arising from meeting the costs associated with/ arising from the event, from your own resources – probably from accumulated capital (whether that be by way of personal assets and/ or accrued leave entitlements).

Mitigating the effects

To mitigate the financial risk, you need to have an understanding ahead of time as to what the risk is likely to be, when it is likely to impact you, for for how long it will persist – and what added financial cost/ lost financial opportunity will be involved: armed with such information, you may be able to take action to minimise the financial and lifestyle impact of the event.

Outsourcing the consequences

The usual way that we outsource the financial impact of risk, is to insure: Private Health Insurance; Comprehensive Motor Vehicle Insurance; Compulsory Third Party Insurance; Travel Insurance; Public Liability Insurance; you’ve got the idea…we insure all manner of ‘things’.

When it comes to personal risk, why is it so often the case that we take for granted our family’s greatest asset – ourselves? Our ability to bring home an income or to perform the domestic tasks, will no doubt create distress and concern to us and our family if they are impaired or lost?

Some serious financial considerations for risk management:

  • If the risk materialises today: note the actions that will need to be taken
    • Accommodation/ care
    • Transport
    • Food
    • Emotional support
    • Education
    • Debts to ‘service’
    • Health care
    • Funeral?
  • Financially what assets are available:
    • How liquid are they?
    • How quickly can they be accessed?
    • Will they realize reasonable value?
    • Whose name are they held in? (Can they be disposed of readily?)
  • Who needs to be considered:
    • Spouse/ ‘significant other’
    • Children
    • Aged parents
    • Business partners?

… and if you answer Yes to any of the three questions above, please consider a review of your situation: to arrange a meeting with an experienced adviser in these matters, call our office (07-3421 3456), or use the Contact Us facility on our website – we will provide a prompt response.

(This post was first published in August 2011: it has been occasionally refreshed and updated, most recently in April 2021)