Last modified on 15 October 2007, at 08:25

Self Insurance

This is an old revision of this page, as edited by Masterbratac (Talk | contribs) at 08:25, 15 October 2007. It may differ significantly from current revision.

Self Insurance describes a decision, normally by a corporation, not to insure a particular risk. Put another way, self insurance means no insurance.

For example, a company may make a decision not to insure for collision damage for company owned vehicles. In such a situation an analysis was probably done that paying for individual collision damage as it occurs is less expensive than buying an insurance policy to cover it.

For example, a company may determine that its annual collision damage on company owned vehicles is $120,000 but the insurance to cover this risk costs $130,000. The decision is then made to self insure. Normally, a company would accrue $10,000 per month for self insurance for collision damage. In the US, such an accrual would not be deductible for tax purposes, although the actual damages paid for would be.

Companies may also self-insure their health insurance plans for employees. Usually, they will use a Third Party Administrator or TPA to administer the claim administration for such a plan. The company will also purchase a "stop loss" whereby an insurance policy will cover claims above a certain amount for either an individual's claims or total claims for the company.