Knowing how the probability of something occurring can significantly influence individual decisions is an important issue. Financial planning and risk mitigation are areas where probability is often used. A young person considering disability insurance is one such example. He is healthy and secure in his employment. But he is also aware that unexpected medical problems or accidents could strike at any moment. His financial situation is jeopardized if he is unable to work.
Gaining a comprehensive understanding of the probability of encountering a handicap could significantly impact his decision-making process. If he determines that the probability of experiencing a disability during his working years is quite small, taking into account statistical information and his health background, he can choose to get disability insurance. Alternatively, he can choose to direct his resources to other financial objectives, such as saving for retirement or investing in more education or professional development (Enayati & Pishro-Nik, 2020). On the other hand, if an event of relatively high probability comes along whose incidence suddenly looks much higher than originally thought, the person can wish to buy disability insurance, given the need to protect his finances. Financial analysts can help consumers weigh the cost of insurance premiums against the potential financial consequences of a disability (Badings et al., 2023), such as medical expenses and lost income.
Equally important is knowing the probability of disability, which can also influence the type and amount of insurance one can choose (Badings et al., 2023). If he works in a profession that is physically rigorous and can have an increased probability of disability, he may want to get a disability policy that is more comprehensive and pays out better. If, on the other hand, his occupation is one with little probability of injury or he has significant savings as a cushion against disability, he may want the simplicity of a policy with lower monthly instalment payments. When thinking about the financial ramifications of possible impairments and deciding whether or not to get disability insurance, probability plays a critical role.
References
Badings, T., Simão, T. D., Suilen, M., & Jansen, N. (2023). Decision-making under uncertainty: beyond probabilities: Challenges and perspectives. International Journal on Software Tools for Technology Transfer, 1-17.
Enayati, S., & Pishro-Nik, H. (2020). A framework for probabilistic decision-making using change-of-probability measures. IEEE Access, 8, 159331-159350.
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