Self Insurance

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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.