DEFINITION of 'Self-insure'

A method of managing risk by setting aside a pool of money to be used if an unexpected loss occurs. Theoretically, one can self-insure against any type of loss. However, in practice, most people choose to buy insurance against potentially large, infrequent losses. For example, at minimum, most people carry auto insurance and health insurance.

BREAKING DOWN 'Self-insure'

Self-insuring against certain losses may be more economical than buying insurance from a third party. The more predictable and smaller the loss is, the more likely the risk is to be retained by a self-insured person. The idea is that since the insurance company aims to make a profit by charging premiums in excess of expected losses, a self insured person should be able to save money by simply setting aside the money that would have been paid as insurance premiums.

Then, if losses occur, the self-insured person can draw against these funds, and retain any excess. Generally, the more financial resources a person has, the more risks they are able to self-insure against. This is because wealthy individuals can absorb a higher level of losses before significantly impacting their lifestyle.

  1. Self-Build Insurance

    An insurance policy that provides coverage during the construction ...
  2. Bridge Insurance

    Insurance coverage for bridges. This type of insurance covers ...
  3. Insurance Underwriter

    A financial professional that evaluates the risks of insuring ...
  4. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Health Insurance

    A type of insurance coverage that pays for medical and surgical ...
  6. Encumbrance

    A claim against a property by a party that is not the owner. ...
Related Articles
  1. Home & Auto

    The History Of Insurance

    The first written policy appeared in Hammurabi's Code. Find out how it evolved from there.
  2. Home & Auto

    How An Insurance Company Determines Your Premiums

    Find out how insurers use credit history to build an insurance score and how it could affect your bottom line.
  3. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  4. Home & Auto

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  5. Active Trading Fundamentals

    Using Logic To Examine Risk

    Know your odds before you put your money on the table.
  6. Home & Auto

    Long-Term Care Insurance: Who Needs It?

    No one is immune to the possibility of one day needing long-term care - and the costs can deplete a life savings.
  7. Options & Futures

    Who Backs Up The FDIC?

    The FDIC insures depositors against loss, but what happens if it runs out of money?
  8. Insurance

    Explaining Indemnity Insurance

    Indemnity insurance is an insurance policy that protects business owners and employees from losses due to failure to deliver expected services.
  9. Insurance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  10. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  1. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  2. Can your insurance company cancel your policy without notice?

    In most states, an insurance company must give a policyholder written notice of at least 30 days before canceling a policy. ... Read Full Answer >>
  3. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  4. Can your insurance company drug test you?

    Insurance companies have the right to require drug tests for health insurance and life insurance policies, but not all of ... Read Full Answer >>
  5. What is the difference between a peril and a hazard?

    The two related terms "peril" and "hazard" are often used in reference to the insurance industry. Essentially, a peril is ... Read Full Answer >>
  6. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!