Self Insurance
What Does Self Insurance Mean?
Self-insurance, also referred to as risk retention, involves relying on one’s own financial resources to cover potential future losses rather than purchasing a policy from an insurance company. This approach typically involves setting aside a portion of income to prepare for such losses.
Insuranceopedia Explains Self Insurance
The term “self-insurance” can be misleading, as it does not involve an actual insurer but rather the allocation of savings by an individual or entity.
An individual might choose self-insurance if they believe that the premiums charged by insurance companies outweigh the benefits of the coverage provided. Wealthy individuals may find self-insurance advantageous for certain losses, as their financial resources can absorb these expenses. However, it is often wise to maintain insurance for specific needs, such as auto insurance. Comparing rates from top car insurance companies can help gauge whether self-insuring for auto losses actually saves money over time.
For individuals with modest incomes, an insurance policy is typically a better choice, as their financial resources may be insufficient to cover unexpected costs, such as hospitalization expenses. For people in that position, a standard health insurance plan will generally cost far less out of pocket than a single hospital stay.
