Self Insurance – Is it an Option?
Is self insurance – as opposed to buying insurance – an option?
The answer is yes it is, provided you are young and healthy and prepared to take some (possibly serious) risks.
Self insurance is basically a bank account into which you would pay a portion of your income each month, and from which you would invest the funds.
The key is to start early, preferably from the time you get your first job, you put money away every month into your own self insurance account – and then invest that money wisely.
Here’s How You Can Make Self Insurance Work for You
You would probably want to invest your insurance funds into equities (shares) in one form or another. Ideally you would want to spread your risk (invest it in different ways).
For example some funds into a fairly conservative unit trust, some into Satrix and some directly into equities. Or you could invest in property, or both,
What Are the Odds on Your Self Insurance Success?
The earlier you start and the healthier you are, better your odds. On balance, provided you invest sufficient money in your self insurance fund every month, and invest it well, you will be better off as a result.
Why? Because insurance companies generally – whether they are involved in long or short term insurance – are there to make a profit for their shareholders. So, on average, YOU will reap the profit instead of the insurance company/companies. provided disaster does not strike too soon.
What Are the Risks Involved?
Yes, there are risks involved. As much as you could come out on the right side, you could also come out on the wrong side.
What if your house got burgled many times, or your car got stolen or crashed more than average? Or if you, or a member of your family, got seriously ill early on? Or if your house burned down a month after you had paid it off?
You could be in trouble, possibly BIG trouble, if self insurance is all you have.
A Self Insurance/Buying Insurance Compromise Could Be the Answer
On average you will benefit from self insurance, but you COULD lose big time. A compromise would be to combine going the self insurance route with buying insurance .
For example, create and grow your own (modest) self insurance fund to deal with the ‘small stuff’ – such a doctor’s visit and medication, dents to your car and minor thefts.
But also have a medical insurance hospital plan that will cover the big problems, insure your car with a big excess (the portion you pay) that will result in low premiums. Under-insure your house and home contents and accept you will only be paid out a proportion of the value of your losses.
Be Aware of risk If You Self-insure
In the end, whether you choose to follow the traditional route and take out insurances, or whether you choose self insurance or a compromise, PLEASE make sure that you take sensible steps to protect yourself against unexpected catastrophes, like falling seriously ill, or your house burning down, or your car or your home contents being stolen.
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