Explain and propose ways to protect human capital against the risks it faces

The response depends on severity and frequency: small, frequent losses are usually retained or reduced; large, rare losses are transferred through insurance. Life insurance replaces earnings lost to premature death, sized either by the human-life-value method (the value of the lost earnings) or by a needs analysis (present value of the family's needs less existing resources). Disability and health cover protect earnings during illness. Other tools include an emergency reserve, continued education to limit obsolescence, and diversifying financial capital away from the employer or industry so that it does not share the job's risk. The trap is insuring small losses expensively while leaving a catastrophic risk, such as long-term disability, uncovered.