Self-insurance: Does It Work and Do You Need It?


When it comes to insurance, it often feels like you don’t do anything but pay the premiums. You spend hundreds, if not thousands, of dollars on different insurance every month. No matter what type of coverage you have right now, it will make you feel that these are draining you. Many people have let go of their insurance because they couldn’t accept the reality of having to part ways with their hard-earned money every month.

You have all these types of insurance—life insurance, car insurance, home insurance, and business insurance—that feel overwhelming. But do you know that you can self-insure? Think about it. No more insurance premiums. No more jargon. It’s just you, your savings, your business, and any investment that you have in your portfolio.

Third-party Insurance


Buying insurance from a third-party company means letting that company assess the risks of losses of its clients. They base the losses on the actual data of claims paid. Then, they charge premiums based on those risks. The money that has been pooled together from all policyholders’ premiums will be used every time someone makes a claim.


To some extent, everyone is self-insured. There are components in your life that are self-insured. Your phone might not have third-party insurance. If you rent a home and do not have renter’s insurance, you are self-insuring. You are taking on the risks of covering for the cost of repair and replacement of these things. Self-insurance simply means accepting full responsibility for the protection of your assets. In case of loss, you will be the one to shoulder the burden.

That’s how self-insurance in terms of car, home, life, and business means, too. If you incur losses in your business, you should have enough savings and assets to cover those losses. If your car got stolen, you should have money to replace that. In your home, you should have the money to repair and replace components that can break down over time.

And finally, in terms of life, self-insurance means having money to leave to your family when you pass away. This money ensures that your kids will still go to college and that they don’t have to worry about your debts, funeral expenses, and many other things.

Should You Self-insure?

The people who should self-insure are those who have the money to cover financial losses, loss of income, loss of personal properties, or their deaths. They should have enough money in their savings to use in situations that would otherwise demand an insurance claim.

How do you know you should self-insure? Ask yourself if you have the means to protect yourself, assets, and family in case you lose a business, car, home, or your life. Where will you get the money in case of a bad decision in your business? Do you have money to spend when you lose a job suddenly?

Self-insurers should have enough money to cover events of losses in assets. They should also have a separate emergency fund that will shoulder the burden of possible financial losses. You cannot empty the coffers during a financial loss. If that’s where you’re at right now, then your financial status is not fit for self-insurance.

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