Self-insurance is a method of managing risk where an individual or organization chooses to assume financial responsibility for potential losses or damages, rather than purchasing insurance from an external provider. Self-insurance is typically used by individuals or organizations that have significant financial resources and can afford to absorb the cost of potential losses or damages.
Self-insurance can take many forms, but some examples include:
- Setting aside a portion of funds for potential losses or damages, such as creating an emergency fund or reserve fund.
- Retaining risk through deductibles or self-insured retentions, which involve assuming a portion of the risk and purchasing insurance coverage for the remainder.
- Captive insurance, involves creating a subsidiary company to provide insurance coverage for the parent company’s risks.
Self-insurance can offer several benefits, such as greater control over the insurance process, lower insurance costs, and the ability to customize coverage to meet specific needs. However, self-insurance also carries risks, as the individual or organization assumes full financial responsibility for any losses or damages. This can be particularly risky if the potential losses or damages are significant or if they occur frequently.
Overall, self-insurance is a viable option for individuals or organizations with significant financial resources and a willingness to assume the risk of potential losses or damages. However, it’s important to carefully consider the risks and benefits of self-insurance before making a decision.« Back to Glossary Index