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Does It Make Sense to Self-Insure?

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You may have heard the term “self-insure,” and wondered if it’s a concept that you can explore a bit further.

When you decide to self-insure, you are making the commitment to set aside money to pay for unexpected events that may happen to your home, vehicles, or health instead of purchasing traditional policies from an insurance company.

One benefit is that you can pocket the money that you have paid in insurance premiums. Car insurance, for example, costs an average of $2,014 a year. But the main drawback is that if you incur an unexpected loss, the full financial burden falls on you. ¹ 

“Let the wise listen and add to their learning, and let the discerning get guidance,” Proverbs 1:5

Pros & Cons of Self-Insuring²

Generally, individuals with a large pool of easy-to-access assets who live a risk-averse lifestyle are the ones who can entertain the idea of self-insuring. They are able to pocket what you would normally pay for insurance premiums with an understanding that an accident or loss could deplete your premium savings. Or worse, an unexpected event could take a toll on your overall personal finances.

Keep in mind, too, you may not be permitted to self-insure in every scenario. For example, if you have a mortgage, the lender will want proof of insurance. And in most states, auto insurance is required.
 

What does Self-Insurance Look Like?

With Your Automobiles: Self-insurers could consider dropping all optional coverage. In the event of a collision, you would pay out of pocket for any damages. 

With Home Insurance: If your mortgage is paid off, you can consider canceling your home insurance, which would mean any damages (e.g., a leaking roof) would be paid for out of pocket.

Who Might Consider Self-Insuring?

Self-insurance, like most financial decisions, depends on a variety of factors. While it may be an open discussion for some, it likely does not fit all family circumstances. At the highest level, self-insurance may only be a consideration if, 

  • You have no dependents
  • You are nearing retirement
  • Your mortgage is paid off

Self-insurance isn’t an all or nothing decision. We have clients who are comfortable adjusting their automobile coverage to a more “self-insure” model while choosing to keep insurance coverage in other aspects of their lives.

Christian Health-Care Sharing

An alternative to traditional insurance or self-insurance is a faith-based plan where you share your insurance needs with other believers. Bear in mind that these are not insurance plans. Rather, each month your monthly “premium” is matched with another person’s medical bills. Eligible medical bills are shared and coordinated between members. 

One of the most popular plans is called Medi-Share. Samaritan Ministries, OneShare Health and Altura HealthShare are other groups that are a community of Christians who help pay one and another’s medical bills. If you are interested in this approach, we would encourage you to explore a bit further.

We stress the importance of having an overall strategy when moving down the path of self-insurance or when considering a Christian health-care sharing approach. It’s critical to have a full understanding of the risks you are assuming when you begin exploring these choices.

¹ BankRate.com, 2023

² USAToday.com, July 16, 2023

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