Everyone has a different level of risk and before you can start to manage your risks you need to identify them. For example, you may live in area where theft is common, or you may live in an area that is prone to flooding.
Before buying insurance, it is important to identify risks and determine how you can reduce the possibility of them occurring. You are then able to put protective measures to reduce the possibility of the risk occurring. For example, you may install security cameras, floodlights and an alarm system in your house to ward off thieves. Insurance will then come in as a way to reduce the impact, especially financially, if the event does occur.
Insurance is an important component of risk management, but it’s not the only one.
It is a condition in most insurance policies that the policyholder has taken all reasonable precautions to manage any risk to their property, and that they have declared any potential risks to the insurer at the time they are applying to take out an insurance policy.
The general principle is, the higher the risk, the higher the premium.
By paying an excess, you are accepting the management of a small part of the risk and thus you will pay a lower premium. You may also choose not to pay excess, this will translate to a larger premium since the full cost of the risk has been transferred to the insurer.
Indulging in risky behaviour may be excluded from some forms of insurance. For example, most medical insurers may not accept claims from bungee jumping or sky diving injuries. Motor insurers are unlikely to pay your claim if the driver of the vehicle was involved in an accident while driving under the influence of alcohol