Financial Definition of SELF-INSURE
What It Is
To self-insure means to use one's own money to pay for unexpected losses (rather than insurance).
How It Works
Let's say John Doe owns a restaurant. He buys property and casualty insurance that only covers claims over $100,000. Any losses below that are John's to deal with. John figures that smaller losses are so unlikely and infrequent that it's cheaper to pay for the losses when they happen instead of sending an insurance company money every month. Thus, we might say John self-insures below $100,000.
Many companies choose to self-insure their employees, meaning they don't rely on insurance companies to pay for the claims.
Why It Matters
People and companies most often choose to self-insure when they are reasonably certain that certain losses are unlikely and/or less expensive to deal with than paying to insure against those losses.
Self-insurance is one way to explain why retirees generally need less life insurance than, say, people in their 30s: A young family that loses a breadwinner is far more financially devastated than a retired couple that would face little or no income loss if one person dies.
legal Definition of self-insure
- an employer wishing to self-insure its liability
- —Pennsylvania Statutes
- a governmental agency that self-insures
Seen and Heard
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