What is the Objective of Personal Financial Planning?

Personal Financial Planning is the process by which individuals and families develop and implement a comprehensive plan for achieving their financial objectives. The Process requires such decisions as whether setting aside funds for children's college education is more important than saving for retirement, basically a decision involving the priority of financial objective. The goal of personal financial planning is that financial decisions are not made independently, but are made as part of a comprehensive plan that accounts for all of an individual's or family's financial objectives and how those objectives could be reached.

What is the Objective of Insurance?
Insurance enables a person or an organization called the "Policy Holder" or "The Insured" to transfer the financial consequences of a loss to an Insurer. The Insurer, in return, pays the policy holder for the covered losses and distributes the costs of losses among all policy holders. Insurance is just one technique that the organizations use as part of an overall process known as Risk Management.

Who regulates the Insurance Industry?
In the United States, the State Legislature sets broad policy for the regulation of Insurance. It established and oversees the State Insurance Departments, regularly review and revise the State Insurance laws, and approves state regulatory budgets. The State Insurance departments roughly employ 12500 regulatory Employees nationwide.

What are the different types of Insurance and how is it sold?
Insurance can only be sold by licensed Insurance Agents. Insurance Agents must pass a State Specific exam to qualify and obtain an Insurance Agents License after passing a background check. In addition, licensed agents must complete State specific continuing education requirements to maintain their license. A Life and Health License allows an agent to sell Health and Life Insurance and a Property & Casualty License Allows an Agent to sell Personal and Commercial Insurance Products. Some States allow a Limited Lines License for specific type of a product.

What is the difference between Personal and Commercial Lines?
Personal lines is for individuals and families, such as Auto Insurance, Homeowners Insurance, Motorcycle Insurance and Boat Insurance. Commercial Lines is for Businesses and Organizations.

What are different types of Commercial Insurance?

What is Risk Management?
Risk Management is the process of identifying, analyzing, and managing loss exposures in such a way that an organization can meet its objectives.

What is a Loss Exposure?
A Loss Exposure is a possibility of a loss. In other words, if an organization could suffer a particular loss, it is exposed to that type of loss. For example, buildings in the Midwest United States are exposed to tornado damage and therefore are said to have a tornado loss exposure. Tornadoes do not occur in most West coast states, therefore buildings in those areas do not have a loss exposure. Commercial Insurance responds to both property loss exposures and liability loss exposures.

What are the two types of Loss Exposures?
A Property Loss Exposure is the possibility that a person or an organization will sustain a financial loss as the result of damage, destruction, taking or loss of use of property in which that person or organization has a financial interest. The possibility of tornado damage, noted above is an example of a property loss exposure.

A Liability Loss Exposure is the possibility that a person or an organization will sustain a financial loss as the result of a claim being made against that person or organization by someone seeking monetary damages or some other legal remedy. An example of a liability loss exposure is the possibility that a restaurant will be sued by one of its customers who has slipped and fallen because of a water spill on the restaurant's floor.

How are Loss Exposures identified and treated?
Property and Liability Loss Exposures can be identified and treated through the following Risk Management Process.
(1) Identifying and Analyzing loss exposure
(2) Evaluating the various techniques for treating the loss exposure
(3) Selecting the most effective technique or techniques
(4) Implementing the selected technique
(5) Monitoring the program and making needed corrections or adjustments.

What are some of the additional, non-Insurance Risk Management techniques?

Insurance is only one of several risk management techniques and it is almost always used in combination with other techniques. The non-insurance risk management techniques include the following:

(a) Avoidance occurs when an organization avoids an identified loss exposure by choosing not to own a particular item or property or to engage in a particular activity. For example, by not manufacturing a certain product to avoid the potential liability for injuries resulting from the new product.

(b) Loss Control includes any measure to prevent losses from occuring (such as storing gasoline in sealed, approved containers) or to reduce the size of losses that do occur such as an automatic sprinkler system in a building.

(c) Retention is when an organization chooses to pay all or part of its or "self-insures' its losses. For example, a business might choose to self-insure certain exposures or to purchase large deductables on its insurance policies. When the organization has the financial ability to obsorb some or all of its own losses, retention may be less costly in the long run than buying insurance to cover the same losses.

(d) Non Insurance Transfer Occurs when an organization such as a building owner obtains the promise of a second, noninsurance organization "such as a remodeling contractor" to pay for certain losses that would otherwise fall on the first organization. Also known as "Hold Harmless Agreements" or "Indemnity Agreements", non Insurance transfers are commonly included in a wide variety of contracts, such as leases, construction contracts, and purchase agreements.