Chris and Karen are married and own a three- bedroom home in a large Midwestern city. Their son, Christian, attends college away from home and lives in a fraternity house. Their daughter, Kelly, is a senior in high school. Chris is an accountant who works for a local accounting firm. Karen is a marketing analyst and is often away from home several days at a time. Kelly earns extra cash by babysitting on a regular basis.

The family's home contains household furniture, personal property, a computer that Chris uses to prepare business tax returns on weekends, and a laptop computer that Karen uses while traveling. The Swifts also own three cars. Christian drives a 2004 Ford; Chris drives a 2009 Pontiac for both business and personal use; and Karen drives a 2011 Toyota and a rental car when she is traveling. Although the Swifts have owned their home for several years, they are considering moving because of the recent increase in violent crime in their neighborhood.

a. Describe briefly the steps in the personal risk management process.
b. Identify the major pure risks or pure loss exposures to which Chris and Karen are exposed with respect to each of the following:
1. Personal loss exposures
2. Property loss exposures
3. Liability loss exposures
c. With respect to each of the loss exposures mentioned above, identify an appropriate personal risk management technique that could be used to treat the exposure.

a. Describe briefly the steps in the personal risk management process.

Risk control is a generic term to describe techniques for reducing the frequency or severity of losses. Firms evaluate potential losses and take action to reduce or eliminate such threats. This techniques utilizes findings from risk assessments ( identifying potential risk factors in a firm’s operations, such as technical and non-technical aspects of the business, financial policies, and other policies that may impact the well-being of the firm), and implementing changes to reduce risk in these areas.

b. Identify the major pure risks or pure loss exposures to which Chris and Karen are exposed with respect to each of the following:

1. Personal loss exposures

•Premature death of Chris or Karen and the subsequent loss of financial support to surviving family members.

•Catastrophic medical bills incurred by Chris or Karen.

•Catastrophic medical bills incurred by Christian or Kelly.

•Total disability of Chris or Karen and the subsequent loss of financial support to the surviving family members.

2. Property loss exposures

•Physical damage or theft of household personal property.

•Physical damage or theft of family cars.

•Theft of the laptop computer used by Karen while traveling.

•Damage or theft of the business computer used by Chris.

•Residing in a high crime-rate area, which increases the probability of theft or robbery.

3. Liability loss exposures

•Legal liability arising out of the operation of a family car by family members.

•Legal liability arising out of the use of a rental car by Karen when she is traveling.

•Legal liability arising out of other activities of family members that can result in bodily injury or property damage to others.

c.With respect to each of the loss exposures mentioned above, identify an appropriate personal risk management technique that could be used to treat the exposure.

Chris and Karen should purchase adequate life insurance and disability income insurance to deal with the risk of premature death and total disability. Chris and Karen and the children should be insured under a group or individual major medical policy to deal with the risk of catastrophic medical bills. Loss control could also be used by practicing healthy lifestyle habits.

A homeowner’s policy would cover the physical damage and theft of household property. Collision and comprehensive auto insurance would cover the possible physical damage or theft of a family car; retention could also be used by having a deductible for collision and comprehensive losses. Chris and Karen should also check with their insurance agent to see if their homeowner’s policy provides adequate insurance on the business computer and laptop computer. Karen could also use loss control when she is traveling by not leaving the laptop computer unattended.

The legal liability loss exposures can be handled by a homeowner’s policy, which provides personal liability insurance. Auto legal liability insurance could insure the legal liability arising out of the negligent operation of a family car by family members.

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