The purpose of carrying insurance is to protect yourself and your family financially in the event something breaks, is damaged, or is stolen. Insurance companies stay in business because they take in more money than they pay out, which means a lot of people pay premiums and never file a claim. Because of this some people opt to self-insure. Instead of paying an insurance company, they put money into a savings account designated for emergencies. It’s actually possible to spend less to insure yourself. Following are a few tips on how self-insuring can help you save money.
Have a Savings Plan
For most people who choose to self-insure, the best method of doing so is to open a savings account that is to only be used for an emergency. Instead of paying insurance premiums, you would deposit that money into your savings account where it would collect interest until you actually need it. For instance, if you buy a new washer and dryer, the store will offer you an extended warranty. These offers usually sound like a good deal because everyone knows that appliances are bound to wear out as soon as the warranty expires, so taking out the extended warranty means you’ll be protected when the washer or dryer breaks. But what if it doesn’t break? The companies that offer extended warranties wouldn’t be in business long if their products consistently broke during the extended warranty period, so you may be better off taking the money you’d normally spend on the warranty and put it into your emergency savings fund.
The Same Principal as High Deductibles
Self-insuring by sticking the money you’d normally spend on insurance premiums into a designated savings account works on the same basic principle as having high deductibles on an insurance policy. Most people who carry high deductible insurance policies protect themselves by having money set aside to use for the deductible if they have to file a claim. Self-insuring takes that a step further by cutting out the insurance company and putting the entire amount that you’d spend on insurance premiums into savings. Your savings account will grow faster--providing you actually deposit enough money into it--so you’ll have enough money to have the problem fixed that would normally be handled by an insurance claim.
Types of Self-Insurance
Although it’s theoretically possible to self-insure in any area where insurance is deemed appropriate or necessary, there are certain types of insurance that offer more rewards, or contrarily, more danger to be without insurance coverage.
Automobile Insurance
Automobile insurance is mandated by law--even if you own your vehicle you are still required to carry liability insurance if you intend to drive on public roads--so self-insuring in that area isn’t feasible. However, you could opt for low liability coverage and save some money by using your ‘self-insurance’ savings account to pay for more expensive problems if they arise.
Life Insurance
A lot of people drop life insurance policies after they’ve accumulated enough wealth to provide for their families, so it’s one area where self-insuring isn’t unusual. If you’re careful with your money, and develop a savings plan early in your working career, you should be able to set enough aside so that later in life you could warrant dropping your life insurance coverage. Most people who do this are debt free so they don’t have to worry about their savings being eaten up in order to pay their bills.
Homeowner’s Insurance
Although most people consider homeowner’s insurance a necessity, it is possible to self-insure by building up enough money in a savings account to adequately protect yourself against damage to your home or property. Keep in mind that the costs associated with maintaining a home and property can be steep, and that if it’s damaged severely during a storm your savings could conceivably be gone very quickly. That’s why many people choose to partially self-insure by carrying a high deductible policy instead complete self-insurance.
Health Insurance
Even more so than with a homeowner’s insurance policy, health insurance coverage is considered necessary. Due to the continually rising cost of health care, your savings could be used up very fast if someone in your family is injured or becomes ill. Again, the best form of ‘self-insurance’ where health care is concerned is to get a high deductible policy and put the savings in insurance premiums into your ‘self-insurance’ savings account.
Have a Savings Plan
For most people who choose to self-insure, the best method of doing so is to open a savings account that is to only be used for an emergency. Instead of paying insurance premiums, you would deposit that money into your savings account where it would collect interest until you actually need it. For instance, if you buy a new washer and dryer, the store will offer you an extended warranty. These offers usually sound like a good deal because everyone knows that appliances are bound to wear out as soon as the warranty expires, so taking out the extended warranty means you’ll be protected when the washer or dryer breaks. But what if it doesn’t break? The companies that offer extended warranties wouldn’t be in business long if their products consistently broke during the extended warranty period, so you may be better off taking the money you’d normally spend on the warranty and put it into your emergency savings fund.
The Same Principal as High Deductibles
Self-insuring by sticking the money you’d normally spend on insurance premiums into a designated savings account works on the same basic principle as having high deductibles on an insurance policy. Most people who carry high deductible insurance policies protect themselves by having money set aside to use for the deductible if they have to file a claim. Self-insuring takes that a step further by cutting out the insurance company and putting the entire amount that you’d spend on insurance premiums into savings. Your savings account will grow faster--providing you actually deposit enough money into it--so you’ll have enough money to have the problem fixed that would normally be handled by an insurance claim.
Types of Self-Insurance
Although it’s theoretically possible to self-insure in any area where insurance is deemed appropriate or necessary, there are certain types of insurance that offer more rewards, or contrarily, more danger to be without insurance coverage.
Automobile Insurance
Automobile insurance is mandated by law--even if you own your vehicle you are still required to carry liability insurance if you intend to drive on public roads--so self-insuring in that area isn’t feasible. However, you could opt for low liability coverage and save some money by using your ‘self-insurance’ savings account to pay for more expensive problems if they arise.
Life Insurance
A lot of people drop life insurance policies after they’ve accumulated enough wealth to provide for their families, so it’s one area where self-insuring isn’t unusual. If you’re careful with your money, and develop a savings plan early in your working career, you should be able to set enough aside so that later in life you could warrant dropping your life insurance coverage. Most people who do this are debt free so they don’t have to worry about their savings being eaten up in order to pay their bills.
Homeowner’s Insurance
Although most people consider homeowner’s insurance a necessity, it is possible to self-insure by building up enough money in a savings account to adequately protect yourself against damage to your home or property. Keep in mind that the costs associated with maintaining a home and property can be steep, and that if it’s damaged severely during a storm your savings could conceivably be gone very quickly. That’s why many people choose to partially self-insure by carrying a high deductible policy instead complete self-insurance.
Health Insurance
Even more so than with a homeowner’s insurance policy, health insurance coverage is considered necessary. Due to the continually rising cost of health care, your savings could be used up very fast if someone in your family is injured or becomes ill. Again, the best form of ‘self-insurance’ where health care is concerned is to get a high deductible policy and put the savings in insurance premiums into your ‘self-insurance’ savings account.