What are the risks of self-insuring?

Self-insuring is when a business or individual chooses to pay for their own losses or damages that occur, rather than having an insurance plan. In South Dakota, self-insuring might seem like a good idea since it can potentially save money upfront, but there are many risks associated with it. The first risk is financial. Even if you are financially stable now, a large loss or damages could force you to go into debt or bankrupt your business. Insurance companies have funds specifically set aside and pooled together to take on risks. If a loss occurs, the company can pay for the damages instead of the business owner. With self-insurance, all the risk is placed on the individual or business. The second risk is legal. If a third-party is injured or has their property damaged by a person or business who self-insures, they can sue you in court. An insurance company usually has liability coverage that will cover the cost of legal fees and settlements. But without adequate cover, the individual or business could be on the hook for the costs. The third risk is access to money. If you self-insure and a major loss occurs, you may not be able to afford to pay for the damages or repairs with the capital you currently have. Insurance companies usually have enough money allocated to pay out for major losses without reducing the amount of money available to the policyholder. Ultimately, self-insuring is a risky decision that can lead to significant financial losses. It is important to assess the risks and rewards before making a decision.

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What are the risks of self-insuring?

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