Understanding Personal Risk
The first step to managing personal risk is to know that it’s present and to understand what it entails and what the stakes are. In order to do that, you need to think about your exposures to risk. An exposure is anything that creates or enhances risk, for these purposes.
But what is personal risk? It’s a situation involving exposure to danger, harm, or loss. In the context of renters insurance, it’s generally thought of in terms of loss to you, and danger or harm to someone else. Specifically, you’re looking for exposures created by your failure to act in a prudent manner that exposes others to danger or harm.
Personal risk can best be thought of as anything that you do (or don’t do) that would allow someone to suffer a loss for which you would normally be responsible. That can be exposing someone else to the risk of injury, such as by not covering a swimming pool, or exposing yourself to the risk of loss to property, for example.
Identifying Personal Risk
Look around you right now. What are the three things most likely to cause bodily injury to another person? We brainstormed this article on a conference call after hours, and we all took a look around our respective home living rooms. One person identified a child’s toy left on the stairs, in light of the fact that their other child had a friend over who could have tripped on that toy and fallen down the stairs.
Another person noted that his steps could be lit better, because several delivery drivers have tripped over the top step. While you may never identify every possible risk, the identification stage is crucial for one simple reason. The more personal risk that you identify and mitigate, the better you look when someone invents a new way to hurt themselves in your home.
The above statement is perhaps a bit subjective, and yet not wrong either. If you trip on something in the home of someone who has their things strewn everywhere, rarely cleans, and clearly hasn’t bothered to even consider risk, it’s a reasonable conclusion that but for you being in the negligently maintained home, you wouldn’t have been injured and therefore the person is liable. On the other hand, if you’re injured in the home of someone who clearly makes an effort to keep their home free of risk and has taken steps to mitigate it, there might be more of a question as to liability.
Is that how the law defines liability? Nope. Is that how the twelve people who would decide the case if it went to trial define it? Yes, even if they refuse to admit that fact. It’s human nature, and never forget that other humans (with all their preconceived notions) are the ones who will decide your fate if you’re ever on the wrong end of a liability claim!
Mitigating Personal Risk
Mitigating personal risk is when you take steps to reduce exposures. If you rent a home with a pool in the backyard, you make sure that there’s a fence and a lock so that kids can’t get to it unsupervised. If you have something wrong with the floor in your home that’s a trip hazard, you make sure you let your landlord know – preferably in writing – so that it can be fixed quickly and reduce that exposure.
Mitigating also means having a risk-based mindset. Before making a major decision, ask yourself what the chances of a loss are. This can (and should) become ingrained in your thought process. Before you turn away from the stove to answer the phone, think for half a second about how much fire risk that exposes you and your neighbors to, and then ignore the phone and focus on the stove. That’s a risk-based mindset.
Avoiding Personal Risk
Avoiding personal risk is great, as far as it goes. You could be that parent who never lets their kids have friends over. That would avoid the risk of those kids getting injured in your home, or of you serving them food that makes them sick. But you don’t want to be That Guy at the PTA meetings, either. So it’s difficult to completely avoid that risk.
Risk avoidance is simply choosing not to do things that would increase your exposure to risk. For example, choosing to never drive drunk is a form of risk avoidance and a very prudent one. But just because the major risks can be avoided doesn’t mean they all can. Sometimes things just happen. Sometimes errors are made by electricians, and buildings get set on fire. You can’t completely avoid that possibility. That’s why a risk management device called renters insurance was invented.
Transferring Personal Risk
What is Lancaster, PA Renters Insurance? It’s a combination of transferring your personal risk to an insurance company and paying them money in return for their acceptance of the risk. Transferring personal risk with renters insurance doesn’t mean you’ll never have a fire or that someone won’t be injured in your apartment, of course.
What it means is that the financial aspect of that risk has been transferred to the insurance company. If someone is hurt in your apartment and it’s your fault, the financial risk to you is actually borne by the insurance company because they’re the ones who will pay the claim. If there’s a fire, you don’t bear the risk of paying to replace everything you own, the insurance company does.
Insurance policies cover a variety of circumstances because risk tends to be broad. In the fire example, if you’re responsible for the fire there’s the risk of buying all your stuff all over again, of course. But you also have exposure to the expenses of other people in your building who need to replace their stuff. Don’t forget about the risk of the building owner wanting you to pay for their deductible, and their insurance company wanting you to pay them back for the building.
The reason that you have renters insurance in PA is to transfer that personal risk from your day to day life to the insurance company. We’d all like to believe that we’re conscientious and will never be negligent or make a bad decision. But even if that were true – no one is on their game 100% of the time, of course – there would still be exposure to risk from other areas.
Lightning could strike your building. Someone could break into your apartment, steal your property, and then cut themselves on the broken glass that they caused when they entered and sue you for their injuries. It’s not outside the realm of possibility that they could win. Your insurance would defend you against the suit, because the policy would pay for the loss if proven. Your insurance would also replace the stuff that they stole, as well.
Personal risk management is a mindset as much as it is having the right insurance. Sure, it could cost another five dollars a year to increase your liability limits to transfer more of that risk, but is five dollars a year worth it? Absolutely. Personal risk management is about trading off risk versus other things, like how much you spend on insurance, while keeping in mind your exposure and what someone could take from you.
Do you have retirement savings? There’s a risk that someone could sue you for a ridiculous reason – like the aforementioned injured burglar – and they could take those retirement savings. It’s not just about what you have today, it’s about what you will have or hope to have and the chances of someone taking it from you over something that shouldn’t have happened in the first place.
Renters insurance experts are also personal risk management experts, because buying renters insurance requires careful considerations to the kind and amount of exposure that you have. The best way to find out how much coverage you need is to work with the insurance experts for renters at Effective Coverage, who are always happy to take the time to answer your questions and help you create the ideal policy for your personal level of risk tolerance and exposure.
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