ABSTRACT
There are three possible strategies for the people to protect themselves: build a financial buffer, reduce the risk and transfer the risk to an insurance company. This chapter examines the risks the people face and what they can do to mitigate them, so that the people can avoid mortgage payment difficulties and the risk of losing their home. One great risk that reduces a household’s ability to pay its mortgage is a sudden rise of mortgage interest rate to an unaffordable level. Financial planners suggest that all monthly household debt payments should not make up more than 40 per cent of the total monthly gross income. Personal wealth comprises three elements: human capital, property and financial. Human capital is fragile and subjected to three main risks: pre-mature death, poor health and unemployment. Life insurance has been described as ‘money to deal with death’s financial fallout’.
