Before analysing risk one must have a clear understanding of what is risk.
Risk refers to a condition in which there can be possibility of adverse results from a desired situation which was opposite of what was expected.
Risk Analysis means the process of identifying, evaluating and determining all types of risk so that they can be covered in insurance planning.
RISK CAN FURTHER BE DIVIDED INTO TWO PARTS
- Financial Risks
Financial risk is that kind of risks which can be covered by Insurance.
- Non-Financial Risks
These are that kind of risk that cannot be covered by Insurance.
TYPES OF RISK THAT CAN BE COVERED BY INSURANCE
- PERSONAL RISK
Death is one of the harsh realities that each one of us has to face at some point. But it is equally important to keep one prepared financially that in case of unfortunate untimely death the dependents or the family does not go through financial trouble.
Thus, it is important to calculate the “Human Life Value” to estimate value of his life based on the income of the individual. It helps to ascertain the amount for which life insurance cover should be taken by the individual.
H= (E-M) x an
H= Human Life Value
E= Earnings per Annum
M= Maintenance charges + Taxes + Life Insurance Premium
an= Annuity Factor at a given rate of discount (Rate of interest at Bank)
n= Working span (Retirement age – Present age)
In order to cover this risk person can take Life Insurance and Term Insurance policy
There are different kinds of insurances that are available in market to cover different kinds of Health risks. These are:
- Individual/Family Cover
- Critical illness cover
- Top-up Cover
- Cancer Cover
- Diabetes Cover
- Cardiac Cover
- Accident and disability risk
Accident is something sudden and unfortunate risk that we all have. This risk involves disability risk that could be permanent or temporary, partial or complete, loss of income due to unable to work because of accident.
Thus, in order to cover such risks person can take Accident Insurance cover.
- ASSETS AND PROPERTY RISK
- Marine insurance
It refers to any loss and damage caused to ships, terminals, cargo or any mode of water transport by which goods are transported. To cover such risks Marine Insurance is available in market. Risks that are covered are fire, war, accidents or causalities which occur over the sea.
It can be further classified into four categories:
- Hull Insurance
- Freight Insurance
- Cargo Insurance
- Liability Insurance
It refers to risk of damage to the construction of building any of the following reasons:
- Terrorist activity
- Riots & strike
To cover these risks different kinds of building insurance is available in market based on the kind of coverage the person is willing to take. These could be:
- Fire Insurance cover
- Earthquake Cover
- Motor Risk
It refers to those kinds of risks that are related to your vehicle. It could be damage caused to the vehicle, or theft etc. To cover such risks Vehicle Insurance products are available in market.
- Third party insurance
It is a part of motor insurance which is compulsory as per government rules, if you have to drive the vehicle. In case of damage is caused to the third party due to accident, then the Insurance Company will pay the compensation apart from your car damage as per court orders.
- Plant & Machinery
It refers to the risk of loss suffered due to breakdown or damage of the plant and machinery used for production. Such risk can be covered by taking Plant & Machinery cover.
- Household goods
This is a kind of insurance taken to protect the household goods in case of any contingency like:
- Aircrafts or any other article dropped
- Overflowing and Bursting of any water tankers
- Earthquake, Landslides
- Flood, Storm, Hurricane etc.
- Fire Lightning, explosion
Liability Insurance purpose is to provide compensation paid for personal injury to third party or to their property
- Food & beverages
It refers to the Insurance cover taken for liability arising out of poisoning by foreign matter in food or beverage or other edible items supplied by insured. It also covers the legal liabilities arising due to accidents caused due to contamination of water in the swimming pool of the insured
- Product liability insurance
In modern world a lot of canned food stuff, beverages, medicines, acids etc. are available to society. Product liability insurance covers any death, injury or damage to property caused due to these products of the insured.
- Professional indemnity insurance
This kind of insurance is provided to professionals like, charted accountants, Doctors, Lawyers, Solicitors , Architects from legal liability in case any damage is caused due to negligence in performance of their duty. For example if due to negligence of a doctor during a surgery patient suffers some injury then then the legal liability to pay for the damage done by doctor will be bear by the insurance company
- Lift (Third) Party Insurance
This policy covers the owners of the passenger lifts in buildings from any personal injury that occurs to people due to the use of lift or for any other property damage caused to them due to the use of owner’s lift
Employer’s liability insurance
This kind of policy protects the employee from paying any compensation to its employees; for death, disability or any other damage caused to the employee during the employment.