Why might an insured use self-insurance strategies?

An insured may choose to use self-insurance strategies primarily to reduce the total cost of premiums. By opting for self-insurance, an individual or business can set aside funds to cover potential losses instead of paying high premiums to an insurance company. This approach allows them to take more control over their financial risks and potentially save money in the long run, especially if they have a good understanding of their risk exposure and can effectively manage it without transferring all the risk to an insurer.

While other options might seem enticing, they do not directly address the primary motivation behind self-insurance. More comprehensive coverage is typically associated with traditional insurance policies rather than self-insurance, which often involves taking on more risk. Tax benefits are commonly tied to certain types of insurance policies rather than self-insurance strategies. Additionally, while self-insurance can assist in managing risks, particularly with minor losses, catastrophic losses often require higher levels of coverage and resources that can be more effectively managed through conventional insurance policies. Thus, the focus on reducing premium costs makes this approach appealing for those looking to optimize their financial strategy related to risk management.