4 ms·

Pardon my ignorance, but what does it mean to self-insure? Does that just mean you have enough money on hand to cover the losses if it happens?

pinko 5y ago
Yes, exactly. Actuaries are quite good at their jobs, which means the cumulative lifetime cost of insurance generally exceeds the (cost of covering a loss * the probability of that loss), so the only three good reasons to buy insurance are: (1) you can't afford to cover the loss if it should occur (or maintaining/raising cash to cover it would be more expensive than the cost of insurance); (2) the peace of mind from knowing you won't have to worry about raising cash to cover a loss (even if you could cover it) is worth the cost of insurance to you, even if it's a bad deal financially; or (3) you know more than the insurance actuaries about your individual risk profile and have an edge (which is rare but can happen -- e.g., you know a specific product model is extraordinarily likely to fail and buy a cheap extended warranty for it). The first is the best and primary reason to buy insurance, the other two are corner cases.
- daenz 5y ago
  Is there any legal/procedural aspect to self-insuring, or is it just a placeholder for saying "we'll eat the costs" ?
  - dv_dt 5y ago
    I think it’s generally a phrase only used when it is a conscious decision or analysis for an area that generally already has insurance policys commonly written. Eg fire insurance for buildings and contents.
  - more_corn 5y ago
    It’s possible to file for an exception to auto liability insurance by proving that you can cover any liability up to and including the state minimum for liability insurance coverage.
    - adrianmonk 5y ago
      Generally, I would think there's paperwork/procedure/approvals required whenever the insurance protects more than just you. Auto liability insurance is an example because it protects other drivers. Another example might be homeowner's insurance, which (if you have a loan) protects the lender too because the house is collateral.
      - throwawayboise 5y ago
        Insurance does not remove liability from you personally. If you cause damage with your car, you are liable for it whether you are insured or not. The insurance is a private contract between you and the insurer where you basically agree to pay them a monthly amount and they agree to cover any losses you may be liable for (up to some pre-agreed limit). But the liability is not theirs, it is yours, and if the damages exceed your coverage limit, you are responsible for the difference.

pinko 5y ago

Yes, exactly. Actuaries are quite good at their jobs, which means the cumulative lifetime cost of insurance generally exceeds the (cost of covering a loss * the probability of that loss), so the only three good reasons to buy insurance are: (1) you can't afford to cover the loss if it should occur (or maintaining/raising cash to cover it would be more expensive than the cost of insurance); (2) the peace of mind from knowing you won't have to worry about raising cash to cover a loss (even if you could cover it) is worth the cost of insurance to you, even if it's a bad deal financially; or (3) you know more than the insurance actuaries about your individual risk profile and have an edge (which is rare but can happen -- e.g., you know a specific product model is extraordinarily likely to fail and buy a cheap extended warranty for it). The first is the best and primary reason to buy insurance, the other two are corner cases.

daenz 5y ago
Is there any legal/procedural aspect to self-insuring, or is it just a placeholder for saying "we'll eat the costs" ?
- dv_dt 5y ago
  I think it’s generally a phrase only used when it is a conscious decision or analysis for an area that generally already has insurance policys commonly written. Eg fire insurance for buildings and contents.
- more_corn 5y ago
  It’s possible to file for an exception to auto liability insurance by proving that you can cover any liability up to and including the state minimum for liability insurance coverage.
  - adrianmonk 5y ago
    Generally, I would think there's paperwork/procedure/approvals required whenever the insurance protects more than just you. Auto liability insurance is an example because it protects other drivers. Another example might be homeowner's insurance, which (if you have a loan) protects the lender too because the house is collateral.
    - throwawayboise 5y ago
      Insurance does not remove liability from you personally. If you cause damage with your car, you are liable for it whether you are insured or not. The insurance is a private contract between you and the insurer where you basically agree to pay them a monthly amount and they agree to cover any losses you may be liable for (up to some pre-agreed limit). But the liability is not theirs, it is yours, and if the damages exceed your coverage limit, you are responsible for the difference.