Question

The First family (Adam, Eve, Seth, Cain) have several risk exposures. Adam is a practicing attorney with upper-middle income and positive net worth. Cain is 20 years old, and Seth is 8 years old. Eve is a full-time homemaker. Identify each of the following as critical, important, or unimportant risks.

            a. Professional liability risk in Adam’s practice.

            b. Liability and property loss risks with Cain’s 15-year-old (low value) car.

            c. Disability for Eve.

            d. Risk of fire destroying their home if: i) no mortgage debt; ii) large mortgage debt.

            e. Medical expense risk for Seth.

            f. Premature death risk for: i) Adam; ii) Eve; iii) Seth

Answer 1

Critical Risk is the risk of losses which result in the financial ruin of the insured, family or business.

As per this criteria , Premature death of Adam is a critical risk.

Since, this will result in financial ruin of the family.

Risk of fire destroying home with large mortgage debt is also a critical risk.

Important Risks are risks where the losses will cause major change in lifestyle or profession.

In this case risk of fire destroying home with no mortgage is an important risk.

Professional liability risk in Adam’s practise is an important risk.

Premature death risk of Eve and Seth are important risks.

Disability for Eve ,

Unimportant risks are risks of losses which can be met with the current income or current assets.

Risk of loss of old car, Medical expense of Seth fall under this category.

a. Professional liability risk in Adam’s practice.-----Important Risk

            b. Liability and property loss risks with Cain’s 15-year-old (low value) car… Unimportant Risk

            c. Disability for Eve.-Important risk

            d. Risk of fire destroying their home if: i) no mortgage debt; Important Risk

ii) large mortgage debt.-Critical Risk

            e. Medical expense risk for Seth-Unimportant risk

            f. Premature death risk for: i) Adam;Critical Risk

ii) Eve; Important risk

iii) Seth: Important risk