What is Self-Insurance?
According to Investopedia, “Self-insurance is a risk management technique in which a company or individual sets aside a pool of money to be used to remedy an unexpected loss.”
Self-insurance can be summed up as the decision to retain risk. For example, it means that if your house burns down you must pay for everything, rather than the insurance company, since you own your own policy. Because of this, savings and investments are fundamental components of these types of policies.
The idea is that a self-insured person should save the money they would spend on a premium to cover for losses. But there are few questions that come to mind, and should be addressed before deciding to self-insure:
Consider, who can be Self-Insured?
People can self-insure when they have enough money. That would include being able to cover a loss of income, loss of individual property or, health treatment if needed.
To understand if you can self-insure, you need to ask yourself what the monetary impact will be if you lose something, or a risk materializes whether it comes to you or your business.
Who is Recommended Not to Self-Insure?
Simply, people who cannot afford to cover damages or medical care. Those who do not have enough assets to pay “out of pocket” should not self-insure.
Being self-insured demands a certain discipline in savings. If you do not save the money and crisis comes knocking on your door, you could get financially ruined.
On that regard, the Affordable Care Act requires every American to carry some form of health insurance so fully self-insuring for health-related insurance is not possible.
“Self-insurance can be summed up as the decision to retain risk. For example, it means that if your house burns down you must pay for everything, rather than the insurance company, since you own your own policy. Because of this, savings and investments are fundamental components of these types of policies. .”
Are there Risks in Self-Insure?
Yes, the main risk is that there is nothing but your savings between a catastrophe and your capability to pay for its consequences. In your run of the mill insurance policies, the broker and the insurance company that owns your policy must pay whatever damages you face (considering that you filled a claim and it was approved).
With self-insurance if you do not have money to pay you do not get what you need. If that were to be medical treatment, after an accident or for a recurring disease, it would bankrupt you.
That is the main risk, if you do not save the money that you are supposed to, you may face precarious situations.
It is vital to have most types of insurance (health, home, car, and life) in every stage of your life; in some cases, it is even illegal to go without coverage.
Benefits to being self-insured includes of course the costs savings. If you forgo certain coverage (because it is highly unlikely that you will need it) you would save money in the insurance premiums. This savings is where you go when an accident does occur.
How to Keep Up and be on Top
Being self-insured can surely save you money. That money comes from administrative fees that you are not paying. But it comes at a cost. Staying on top of your policies can get messy and complex. That is when a Claim Management system becomes a powerful and especially useful tool.
TerraClaim can do wonders for the self-insured. This Claims Management Software provides a user-friendly dashboard where you can stay on top of your own management. Think TerraClaim. Terraclaim comes with automated notifications, and workflows, that allow for seamless management of whatever policy you have. Furthermore, your data is secure, stored and encrypted in the cloud. See for yourself by requesting a demo, here.