Choosing to self insure doesn’t mean that you have to forego insurance altogether. Some individuals have a large enough bank account to cover the costs of unforeseen medical expenses, but most people don't. That doesn't mean that you have to settle for high insurance premiums. You can still maintain a reserve for medical treatments, and pay lower premium costs as a result.

Deductibles as Part of a Self-Insure Plan

If you end up with a need to submit a claim, the insurance company will not make payments to until you pay your deductible. At the time of purchase, you decide the amount of deductible you want to pay. If you choose a low deductible, your premium costs will be higher. If you choose a high deductible, you premium costs are lowered significantly. The catch to paying a high deductible is that you have to save that amount. For example, if you choose a deductible of $1,000 in order to pay a lower premium, you must have that $1,000 available in the event that it is needed. The insurance company will not pay the difference until you pay the $1,000 deductible.

Savings for Insurance Needs

One approach to a self insure plan is to save money and decline some of the bells and whistles on certain types of policies offered by insurance companies. For example, instead of paying extra in premium costs for vision care, you can save money for annual eye exams and prescription glasses. Another example is to save money to replace a used car and purchase liability auto insurance instead of comprehensive auto insurance.

Ways to Build up a Reserve

Building up a reserve does require self-discipline and a little money management know-how. You don't have much choice about saving when you choose the self-insure route. If you don't save the deductible amount you need, you could end up in debt that could lead to worse financial problems. Here are some proven ways to save up for your deductible:

  • Create and follow a frugal budget
  • Allocate monthly surplus towards your reserve
  • Sell personal property at a yard sale, flea markets, or to consignment shops
  • Sell other non-real estate assets
  • Sell real estate investments
  • Earn additional income by working overtime, part-time at another job, or by working as a freelancer

These same methods can be used to build up your overall savings to pay off debt or meet other financial goals.

Don’t Risk Your Reserve

It may be tempting to place your reserve in risky investments, such as stocks and bonds, to grow it faster. Resist the urge to rush the process and hold on to your cash. You may need access to cash in the short term and you cannot afford to lose it.  

Self-employed individuals and even some employees prefer to self insure for future needs instead of selecting standard policies with high premium costs. It can be done with planning and discipline to build up a reserve.



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