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.

It's a necessary part of modern financial security. It's also expensive, and often frustrating and unhelpful.

With insurance available to buy for everything from your home to everyday purchases, it's not always easy to know when you need it.

Add in the expense and stress of dealing with major insurance providers, and some start to wonder if insurance is worth it at all.

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.

The upfront appeal of self insurance is clear, but is it actually good financial planning, or needlessly risky?

As with most money matters, the answer is: it depends on the situation, and a bit of personal preference.

For instance, how likely is the risk you would be insuring? How severe could the outcome or expenses be?

Consider some of the following examples to help decide when to self-insure, and when it's better to stick with a traditional plan.

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

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

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

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

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

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

Dealing with insurance companies is rarely fun, but there are many cases where we still need them to avoid financial disaster.

However, there are still plenty of cases where self insurance can save you money and offer peace of mind.

Swipe up for more ideas and strategies to help you build a peaceful, pleasant, and thriving life with your money!