Self-Insurance: When Does It Make Sense?
Smarter and Harder
Insurance has existed for hundreds of years to protect ordinary people from emergency expenses and financial disasters.
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It's a necessary part of modern financial security.
It's also expensive, and often frustrating and unhelpful.
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With insurance available to buy for everything from your home to everyday purchases, it's not always easy to know when you need it.
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Add in the expense and stress of dealing with major insurance providers, and some start to wonder if insurance is worth it at all.
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Some people opt for
Self Insurance
as an alternative.
Rather than pay an insurance company, they set aside savings to cover
themselves
in an emergency.
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The upfront appeal of self insurance is clear, but is it actually good financial planning, or needlessly risky?
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As with most money matters, the answer is: it depends on the situation, and a bit of personal preference.
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For instance, how likely is the risk you would be insuring? How severe could the outcome or expenses be?
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Consider some of the following examples to help decide when to self-insure, and when it's better to stick with a traditional plan.
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In the US, medical expenses are entirely common and a single unlucky bill could lead to bankruptcy. Not worth the risk.
Medical/Health Insurance
Self Insure?
NO
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The risk of needing insurance on these things is usually quite low, and even in the worst case, the costs are rarely life-altering.
Electronics or Appliance Insurance
Self Insure?
YES
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Emergency home expenses can run sky-high. While not always likely, these situations can happen to anyone.
Home or Renter's Insurance
Self Insure?
NO
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This one will depend on factors like the overall cost of the trip, your comfort level, and the likelihood of things like weather preventing travel.
Travel Insurance
Self Insure?
MAYBE
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You may be able to self insure expenses to your own vehicle, but liability for others in an accident should absolutely have traditional coverage.
Auto Insurance
Self Insure?
NO
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Stores will offer you insurance on almost anything you can buy these days. Chances are, replacing your purchase on your own will be cheaper.
Retail Insurance
Self Insure?
YES
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Dealing with insurance companies is rarely fun, but there are many cases where we still need them to avoid financial disaster.
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However, there are still plenty of cases where self insurance can save you money and offer peace of mind.
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