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Risks can be categorized into many forms.
Basic vs Special
Fundamental risk is a type of risk that affects a large number of people in an economy. Earthquakes and war are examples of this. If it arose from the nature of society, namely acts of war and the risk of unemployment, then it is not insurable. On the other hand, fundamental risks due to physical or natural causes can be insurable.
On the other hand, a particular risk is a risk that only affects individuals. For example, fire, robbery and theft. These risks are all insurable.
Dynamic vs. static
Risks can also be classified as dynamic and static. Dynamic risks arise due to changes in the economy that cause financial losses to certain individuals. It exists as a result of adaptation to the misallocation of resources in the economy. In this day and age, one of the clearer examples is the rapid pace of change in the information technology industry. Many companies fell victim, while others emerged as new successes.
On the other hand, static risks occur even though no changes are taking place. During a market boom or bust, there are people who make losses. These types of losses are due to natural hazards like earthquake, typhoon or moral hazard like fraud. Static risk brings no benefits to society, only pure losses.
Pure vs. speculative
Risks can also be categorized as pure or speculative. With pure risk, there is either a potential loss or no loss. In contrast, there are profit or loss opportunities in speculative risk. Pure risk can be insured, but speculative risk cannot. However, the pure risk consequences of speculative risk are insurable. For example, the decision to make a brand new product involves speculative risk of either profiting from the product or incurring a loss. So it is not insurable. However, if the factory burns down and the dealers cannot be supplied as a result, this damage is considered a pure risk and is therefore insurable.
There are basically 3 types of pure risks that affect a person
Kinds of pure risks
Personal Risks
You suffer losses such as lost income, additional expenses and depreciation of property. There are 4 risk factors that influence this:
1. Premature death. This is the death of a breadwinner, leaving behind financial obligations.
2. Age / Retirement. The risk of retiring is not enough to fund the retirement years.
3. Health Crisis. Individuals with health problems may face potential loss of income and increases in medical expenses.
4. Unemployment. Unemployed people may have to live off their savings. When his savings are gone, the bigger crisis awaits him.
property risks
It means the possibility of property damage or loss due to certain causes. There are two types of losses.
1. Direct damage, i.e. financial damage through property damage.
2. Consequential damage, ie financial loss resulting from events of direct loss of property.
For example, in the case of a burned-down shop, repair costs can be incurred as direct damage. The consequential damage is that the company is unable to generate any revenue.
liability risks
A person is legally liable for his or her wrongdoing that causes harm to the body, reputation, or property of another. He can be sued in court and the scariest thing is that if you are found guilty there is no maximum amount of compensation.
Knowing how the risks are classified and what types of pure risks a person faces will surely give you a basic understanding of risk issues and prepare you to further acquire the knowledge of risk management.
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