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Risk Management with Insurance

ICICI Securities 12 Aug 2022

The book- Psychology of Money explains to the larger audience about how people should think about money, why they take money on debt, and how they aim to build their money. The book also examines how people save wealth and their different strategies in maximizing the capital. "You don't have to study interest rates to know why people get into debt; you have to study the history of greed, insecurity, and optimism," the author writes.

In the pursuit of financial success, the author believes that behavior takes precedence over all other factors. He goes on to say that being successful with money is more about how you act than how educated you are. Engaging in the appropriate behavior will assist you in accomplishing your financial objectives.

What is Risk Management?

Trading is a high-risk endeavor. It is as easy as escaping from that valley you thought you would fall in! Many traders are skilled in the technical aspects of algorithmic trading, including coding, quantitative aptitude, statistics, arithmetic, and more. However, they lack one basic but critical quality that will keep losses off the coast. This is widely referred to as risk management.

Risk management is usually the last item on a quant's to-do list when it comes to quantitative trading. They work on analyzing precise entry signals, developing improved indicators, and recognizing and avoiding unethical trading techniques. But the truth is that you can't expect to be a great trader until you learn about risk management and the psychology behind it. Therefore, it is extremely crucial for a trader/investor to understand the dynamics of Risk Management.

While there are a lot of Risk Management techniques available in the market- the purpose/intent of Insurance as a product also meets the need of Risk Management. How? Continue reading to know how Insurance helps in Risk Management.           

How can Insurance help in managing the Risk?

A famous financial expert once said, ‘Life insurance is not an investment. It is a risk management platform to protect future income’.

Everyone is inherently exposed to two major risks: the risk of life and the risk of health. These risks, if left unaddressed, have the potential to financially wreck people's life. Because life is unpredictable, the first inherent danger is the RISK OF LIFE. However, you do not need to be concerned about your finances when coping with these dangers. You can live a stress-free life if you have a good life insurance coverage. You can also select a proper health insurance policy to protect you and your family in the event of a medical emergency. In this way, insurance adds a layer of protection to your finances.

The second is the Risk of Health - Good health is essential for a happy existence. The COVID-19 pandemic has highlighted the significance of good health and health insurance coverage. A good health insurance policy will help you deal with any health problems or medical treatments that arise in your family, as well as cover all medical expenses.

Various ways of how insurance protects you financially amidst uncertainties:

1. Securing your family’s future: 

If you are your family's single breadwinner, the first thing you should do is save responsibly, determine your long-term financial goals, and purchase life insurance to protect your family's requirements. Your investment in a life insurance policy will safeguard their financial security and help them get through difficult times.

2. Fulfilling your Financial Goals:

Everyone has financial objectives. What counts is how much effort you're willing to put in to reach your objectives. ULIPs (Unit Linked Insurance Plan) is the financial tool you need for retirement planning if your goal is to plan your retirement and generate a source of passive income. As a result, you will not be compelled to rely on others and will be able to live freely in the future.

3. Encourages you to save and invest:

Financial planning requires disciplined saving. Consider insurance savings plans, which can not only provide for your family's requirements but also give you the much-needed freedom to make withdrawals from your policy to cover significant or minor life events without requiring you to give up your coverage.

In a Nutshell:

Risk management encompasses a wide range of issues. Loss control is a notion that involves taking actions to reduce the likelihood of things going wrong. It also entails purchasing insurance to mitigate the financial impact of adverse events happening despite our best efforts. Nobody enjoys contemplating what might go wrong. Nonetheless, as an individual, you should be aware of the risks that you might face. You can't make appropriate risk management decisions until you first identify them!

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec acts as a Composite Corporate agent having registration number – CA0113. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Insurance related services are not Exchange traded products and I-Sec is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein mentioned are solely for informational and educational purpose.

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