Risk Management for Parents

Risk management is a fancy way of saying "insurance." A risk management program identifies the things that are important, determines a cost for them, then decides what could destroy or damage those things.

The risk manager looks at the cost of the things, the number of times the things could be damaged, and the range of damages that could occur.

If the thing is a car worth $5000, the risk management program would try to determine how often the car could be wrecked, and how much it would cost to repair it. Then an insurance product would be purchased to pay the anticipated damage.

Risk management could apply to financial needs of single parents as well. A single parent must have a reliable source of child support from the other parent. The risk management program would evaluate the cost of the continued flow of child support and the total cost of losing that flow for a temporary period of time.

The person paying the child support is subject to certain risks that can be determined fairly accurately. For example, every worker is subject to the risk of unemployment. The unemployment rate is now about 5% and seems to be rising. Thus, every person paying child support has a five percent chance of losing his job in the current year.

Risk management would estimate the cost of the loss (the temporary child support not paid while the obligor is unemployed) and the frequency of the loss (the risk of unemployment) and calculate an insurance premium that a person receiving child support could pay to avoid the loss of child support.

This is a concept of risk shifting. The person receiving the child support pays a small amount of money to shift the risk of not being paid child support to sometime into the future. If the need does arise, and the child support is not paid because of unemployment, the child support is paid by the insurance policy. Pretty cool, huh?

A neat concept, but not available to single parents today. I'm trying to change that.