The degree of potential loss as well as the individuals risk tolerance. Generally Speaking, one risks are identified, there are four options one has in handling them:

First, they could avoid the risk outright. 

For example, if someone is afraid of dying in a plane crash, they can avoid that risk by never flying. This was something that ex-NFL coach and broadcaster John Madden is famous for. He never flew. Problem solved! Of course, in doing so he increase the risk of dying in the new alternative of travel he chose (his bus) but you get the point. In life there are risks we can avoid effectively

How to treat financial risk in your life

Travel may be hard to avoid all together but you could easily avoid the risk of dying from a sky diving accident if you decide to avoid sky diving.

Secondly, you could reduce the risk by taking precautions.

When John Madden took his bus to games, he may have reduced his risk of being injured or dying in an accident by making sure his driver obeyed the speed limit or had enough sleep so they didn’t fall asleep at the wheel. You can reduce your risk of dying in a skydiving accident (if you absolutely have to do that) by making sure you wear a parachute (significantly reduce your risk doing this) and even more by making sure it is packed by an expert parachute packer.)

Thirdly, you can retain the risk.

Generally speaking, it is smart to retain risks that have relatively high probabilities of occurring BUT if they do occur, the consequences are not catastrophic. For example, if you own a business, you might retain the risk you get sick for a day or two and need to stay home. If could happen. You could lose money but when you are better you will go back to work and get back just about where you started.

From an insurance standpoint, insurance policies are designed with various forms of optional risk retention that most people are familiar with. Two of these are co-insurance amounts and deductibles found in homeowners, auto and medical insurance plans. These are dollar amounts and percentages that the policy owner retains, and must pay with their own funds, in the event a covered event occurs. Other risk retention features inside insurance policies are waiting periods for disability and long-term care insurance as well as the amount of time these policies cover (for example 2 years vs. lifetime.)

How to manage financial risk in your life

Which brings us to the last way to manage financial risk and that is to transfer risk away.

This is the concept of insurance. Transferring risk with an insurance company is done by paying a small premium that obligates the insurance company to provide financial compensation to the policy owner if the covered event occurs.

What Insurance Coverage Can Decision Tree Financial Help You With Today?

Life Insurance is coverage that provides financial support to survivors after the death of an insured.

Protection that provides financial support for hospitals, drugs, surgery and more. Affordable Care Plans, Private Insurance Plans and Short Term Medical.

Government sponsored health insurance for people 65 and older or receiiving Social Security Disability. Enroll in a Medicare Advantage Plan (Medicare Part C), Prescription Drug Plan (Medicare Part D) and Medicare Supplement Plan.

Stop worrying about your Medicare Decision! We can tell you exactly what the best course of action is when it comes to your Medicare choices so you can avoid costly mistakes and have the best health insurance plan you can when you are eligible for Medicare coverage!

Protection designed to provide a replacement of income when wages are lost due to a disabling illness or injury.

Coverage that provides financial support for individuals who lose their ability to fully care for themselves due to a chronic health condition.

Insurance for cars, trucks, boats, houses, condos etc.

Workers compensation, general liability, employee benefits and more.