what is the benefit of self-insurance when comapared to passing on risk to insurer?
Self-insurance allows you to manage your own money and allows you to keep 100% of the profit. Insurance companies figure out the statistical probability of you filing a claim and how much the average claim payout is. From that number they add a nice profit margin, commissions, and a portion of the overhead of the company. From the very beginning, insurance policies are statistically designed for the average person to lose money. I'm not condemning the industry. Every company exists to make a profit. However, when self-insurance is possible, it allows you access to the same money you would've sent as insurance premiums. For example, if you could self-insure instead of buying a $100,000 life insurance policy, you could put the funds into mutual funds or a good annuity. Assuming your fund did 9% per year (2% below the historical average of all US funds), you would have $383,804.26 in just 10 years. In that last year, you would have made $32,916 in interest alone. Or in 10 years you could have a life insurance policy that says your beneficiary will receive after you pass on. Life insurance is necessary for most people. But, if you can self-insure it can make a significant difference in your net worth over the course of your life. If you have more questions about it please feel free to contact me.
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