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What Does It Mean to Self-Insure?

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Question: What Does It Mean to Self-Insure?
Answer:

When someone says that you can always self-insure, it does not mean going out and getting independent health insurance. Self-insuring means that you save up enough money to cover the related and possible expenses that may occur in the event that you need to use the insurance. Most people who self-insure only do so on life insurance policies, once they have built up enough wealth that their loved ones would be taken care of without the life insurance policy.

It is the law to have car insurance, and so you should not self-insure for car insurance. Additionally car insurance protects your assets if you were in an accident. The car insurance company will help if you were sued for being responsible for an accident. When you consider your car insurance policy you should make sure that the liability coverage is high enough that the person would not come after your home or savings account.

Health insurance is another area where it is dangerous to self-insure. This is because medical bills quickly add up in a catastrophic event or as the result of a serious illness. For example it is not uncommon for health insurance costs to rise above a million dollars if you are diagnosed with and battle cancer. If you did not have health insurance, then you would not be able to pay for the treatment. A better option would be to purchase a high deductible policy, which has a lower premium rate, but covers you if the worst things were to happen.

Homeowner’s insurance is also important to have. The cost of homeowner’s insurance is small in comparison to the cost of replacing your home. Even if you do have enough money to purchase a new home, you should have homeowners insurance. This is considered an asset and you should protect it properly. Many policies will also protect you in the event that someone was injured in your home and decided to sue you.

The only time you should consider self-insuring is for life insurance. You should only do that when you are completely debt free and have enough saved that the insurance policy would not make a difference in whether or not your family would be taken care of. Until you reach that point you should purchase a term life insurance policy of about three to four times your annual income. Although, you may add a little bit more if you are heavily in debt.

Insurance is designed to help protect your assets and your wealth. it helps to limit the financial impact of certain disasters and tragedies you may face. Although, it can be frustrating to give money to the insurance companies every month, it is worth the peace of mind of knowing that the companies will be there when you need them. You do need to choose reliable and trustworthy insurance companies, that will work with you as you file your claims.

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