What Do You “Self-Insure”?

Risk management flow chart on a blackboard
Risk management flow chart on a blackboard

Last fall I was planning to replace two of the four tires on my SUV that were not quite adequate for winter driving. Since we started off with a relatively mild winter, I kept putting it off, thinking it made more sense to wait until winter really got started. You can probably see where this is going, possibly because you have dealt with similar personal or business decisions.  

As you may have guessed, I had a bit of an accident. Fortunately, no one was hurt and nothing was damaged, aside from my own car. My ego also took a bit of a bruising. The cost of the two new tires in the fall was about the same two months later, but the cost of repairing the additional damage to my car was significantly greater. My out-of-pocket costs were greater than my deductible and the possible negative impact a claim would have had on my driving record. I was forced to self-insure my accident, an accident which I did not plan for and that could have been avoided.  

By way of definition, what we “self-insure” has to do with the immediate cost we face in terms of a deductible, retention or out of pocket expense, to rectify our involvement in an incident. Insurance really is about managing exposure and risk. The exposures we are concerned with should be covered by insurance, while exposures we are willing to risk, must be self-insured. Sometimes it’s better to insure what we can’t afford to self-unsure.  

It’s utopia to think that we can all achieve that perfect balance of having the exact insurance we are going to need and the exact rainy-day fund to handle all of our unexpected expenses. However, a little extra planning with your Agent or Risk Manager can go a long way toward planning a proactive risk management strategy you can really afford. 

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