Self-insurance is described as which of the following?

Self-insurance is described as which of the following?

• A. A passive method that requires no planning.
• B. An approach that relies on external insurance.
• C. Planned and funded retention thought out with strategy.
• D. A legal requirement for all employers.

Answer: (C)

Self-insurance is a risk-financing approach where a company intentionally retains and funds its own losses rather than buying insurance from an external carrier. It’s a planned, funded retention chosen with strategy in mind, meaning you set aside reserves, design a funding plan, and actively manage risk to cover anticipated claims. This requires careful assessment of exposure, budgeting for losses, and often integrating controls like deductibles or a captive structure to handle claims. It isn’t something mandated by law for most employers, nor is it simply relying on external insurance or acting without planning. The essence is proactive, strategic funding of potential losses rather than transferring all risk to an insurer.

Self-insurance is a risk-financing approach where a company intentionally retains and funds its own losses rather than buying insurance from an external carrier. It’s a planned, funded retention chosen with strategy in mind, meaning you set aside reserves, design a funding plan, and actively manage risk to cover anticipated claims. This requires careful assessment of exposure, budgeting for losses, and often integrating controls like deductibles or a captive structure to handle claims. It isn’t something mandated by law for most employers, nor is it simply relying on external insurance or acting without planning. The essence is proactive, strategic funding of potential losses rather than transferring all risk to an insurer.