Insurance Essay Example | Topics and Well Written Essays - 750 words

Insurance - Essay Example A certain level of risk is assumed to be accepted given the risk appetite of the management relating to a particular risk. Risk limitation is considered as the blend of risk acceptance and avoidance such that the company designs its portfolio of risk components and considers as to which risk component needs to be accepted or avoided. Risk transfer is the most common risk management technique such that the risk component is transferred to third party. The most common example is insurance in which the risk is transferred to insurance company against the premiums that the insurance company charges from the business. For different home styles, the most appropriate policy is the special policy called as HO-3. This policy insures all main perils except earthquake, flood, nuclear accident and war. Through insurance coverage, one gets deep coverage up to 100% of the replacement cost of home. The home content that insurer generally covers is between 50 to 75% of the property’s value. As far as the tax implications are concerned on obtaining an insurance policy of any type, it is important to note that any loan obtained to purchase the insurance policy is not regarded as taxable income. However, in case of lapse of policy or the surrender of the policy in favor of the insurer, the amount of loan becomes taxable and it will entitle the policyholder to pay tax on the loan amount. Similarly, if the interest paid on that loan is from out of pocket, it will not be tax deductible and thus result in higher tax consequences. As far as the personal finance plan is concerned, in short-term, insurance on automobile, cellular phone etc. will be needed as these things are frequently replaced with the newer models or versions etc. For medium-terms based needs, insurance policies such as health/disability or home policies will be preferred. For long-terms insurance needs, life insurance policies will be included in the financial plan. Savings and