Time to Rethink Risk Management

HUNT VALLEY, Md. (TheStreet) -- Most people buy insurance, but very few actually do risk management. Risk management is when you assess the statistical likelihood of an event happening, the potential cost of that event, the ways to reduce the risk of the event occurring and, lastly, the ways to finance the cost of the event.

If you have analyzed these four issues, then you have actually done "risk management." If you have called an agent and talked about some concerns, then you probably just bought insurance.

True risk management is important for everyone, but vital to the retiree.

True risk management is important for everyone, but vital to retirees, because their risks are experiencing a tectonic shift.

When you are younger you need assets to help the family in a time of death or disability. You need liability insurance at a young age, but if you have nothing it's not likely you will be pursued personally for a liability claim. Therefore, someone in the 20-to-60 age range should, in general, focus on disability, death, property, medical and casualty (liability) and long-term care -- in that order.

Someone who is 60 years old and older in general needs more consideration of medical, casualty, long-term care and property risks. (Note that death and disability are not even mentioned in the 60 and older range for general risk management. The reason most people 60 and older are unlikely to have concerns with the risks of death and disability is that by this time they have a lifetime of financial independence provided through their assets, pensions and Social Security.) Those who are older should consider canceling or surrendering old insurance policies for the cash value under two circumstances:

1. Your health is good and you have no reason to believe your life expectancy is going to be shortened.

2. Your policy is not a dividend-paying policy.

These are general rules, and an experienced fee-only adviser should review the policies before being surrendered.