Self-insurance
Self-insurance is a risk management strategy in which an individual or organization sets aside a pool of funds to cover potential losses instead of purchasing traditional insurance. This approach is often adopted by entities with a good understanding of their risks and sufficient financial resources to cover those risks without external insurance. self-insurance helps manage costs and allows for greater flexibility in handling claims.
Self-insurance meaning with examples
- A small business decided to implement self-insurance for its workers' compensation claims, setting aside a portion of their budget to cover potential injuries rather than relying on a traditional insurance provider.
- The tech startup opted for self-insurance to manage its liability risks. By creating a dedicated fund, the founders felt they could handle any losses that might arise without incurring the expenses associated with standard insurance policies.
- Large corporations often use self-insurance strategies, as they can absorb higher risks through internal reserves, especially for predictable losses like property damage or employee health costs.
- After analyzing their risks, the family decided on self-insurance for their health expenses. They created a health fund that would allow them to pay out of pocket for small visits while covering emergencies as they arise.
- The government entity chose self-insurance for their vehicle fleet. By maintaining a reserve account for repairs and damages, they could effectively manage costs while still providing adequate protection for their assets.
