If any business or not-profit organisation keeps some of its fund in the reserve form for covering future risks, then it will self insurance. In the self insurance, company does not pay the premium of insurance to insurance company but keeps same premium in his own box without any use. When any mis-happening will happen, company can use this fund for cover his loss or risk of loss. It is the cheapest way of risk management. Not just cheapest but there are also many benefits of self-insurance.
1. Multiple Use of Fund
If you buy any insurance policy, you will have to pay the premium. Whether risk will happen or not, you have to pay the premium. Drawback of this policy, that you can not use same premium for growing your business. It is just block of wealth. One side, risk was not happened and other side, you are getting loan at high rate of interest when you have your own earned money but in the pocket of insurance company.
Now, think about self-insurance. You keep some money in your own reserve box for covering different risks. Now, one day, you need money, you can easily take this money as loan without paying interest. You can say, what will happen if risk will happen. No, doubt, you are just taking loan. You are honest and sell the asset in which you have invested same money and cover the loss.
From My Own Experience
You know that I am operating a small online Not-Profit Organisation from Jan. 2008. From time to time, I tried to best to grow it. I have appointed some part-time employees for this purpose. It was very necessary to buy the insurance policy for covering the accident risk of my employees. But, I did not buy because, I am operating a Not- Profit Organisation and I can not suffer the cost of insurance policy. Due to limited source of fund, I am interested to multiple use of my this fund. So, I have started to invest in my self-insurance. One day, I needed Office building for my employees. Because it was the benefit for my employees. I have made it. All cost was taken loan from my self-insurance policy. Now, suppose, one of my employee happens accident ( O God, I pray, Never see this day). I have no money but I have building, So, I will sell it. Today market is fast in real-estate and with very low amount of loss, I can sell it. If it will not sell, I will break it and sell it on scrap for paying medical fees of my employee. It means, money is just converted in my assets without any taking of loan from outside at higher rate of interest. But using is such money need your dedication for return this at any cost.
2. Insurance Companies are Also Playing Gambling
Every company wants to increase their money. Insurance company's officers are expert in the best estimations of total risk cover amount in a year. Same amount, they keep in reserve and with rest money, they play gambling in Stock market. I think, God is great estimator what he thinks, it is sure, it will happen, so, why should I give money to gamblers? I am also learner. I am also learning best estimation. I can estimate the best risk cover amount and keep same amount under self-insurance.
3. Cost Saving
If I will go to insurance office, I will have to pay the bill of petrol. If I have use Internet for paying bill, I have to pay the bill of Internet. If Insurance company is getting money from me for covering my risk, it is not giving free service like me at accounting education. It is getting big fees for providing this service. So, all money will be saved. If I take self-insurance, I can increase this amount because saved cost can be added in it.
4. Learning of Insurance Industry
If I started to keep fund in self-insurance, then, I have to learn the insurance industry. For my own business, I will become Insurance company. I will think like an insurance company who covers the risk. I think, it will be helpful for me for vast my area of knowledge in finance.
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