When assessing insurance for your business, farm or personal assets, you can either self insure (carry the risk yourself) or pass it on to an insurer for a cost.
What does self insuring mean?
Insurance policies serve as a crucial shield against the unpredictability of life, offering peace of mind to individuals and businesses alike. So, if you choose to carry the risk yourself, you need to know what that risk is and have a plan for how you mitigate or reduce your exposure; additionally, if you pass the risk on to the insurer by taking out an insurance policy, you should know what that policy actually covers you for.
It’s essential to understand that insurance has limitations, and not all risks can be fully transferred to insurers. This article delves into concepts such as uninsured risks, self-insurance, and the importance of knowing the limitations of your coverage. By the end of this article, you will hopefully have a better grasp of how to navigate insurance and make informed decisions that protect your interests and assets.
Uninsured risks are those unexpected events and circumstances that are NOT covered by your insurance policy. While insurance provides a safety net for various aspects of your life, it’s essential to know that not everything can be insured. Common examples of uninsured risks can include flood (for home and business insurance) or certain activities of your business that an insurer doesn’t want to cover. Other uninsured risks are things like acts of war, nuclear accidents, and pre-existing medical conditions. These exclusions serve as a reminder that while insurance can be comprehensive, it has its limitations. It’s vital to be aware of these uninsured risks and take additional precautions when necessary.
Self-insurance is a strategy that allows individuals and businesses to manage certain risks without relying on an insurance policies. It involves setting aside funds to cover potential losses and liabilities instead of paying premiums to an insurance company. Self-insurance can be an attractive option for financially stable entities that have the capacity to absorb losses or for businesses with low cash flow, who cannot afford every policy in the market. While it offers greater control and potential cost savings, it also comes with the risk that if something happens that could have been covered by your policy, you will now have to pay that yourself or wear the damage. It is important to assess the feasibility of self-insurance carefully, considering factors such as the nature of the risk, the financial resources available, and legal requirements. This approach can be an effective complement to traditional insurance, providing flexibility and tailored risk management solutions.
Transfer Your Risk to Insurers
Insurance is fundamentally about transferring risk from an individual or entity to an insurance company. When you purchase an insurance policy, you are transferring the financial burden of specific risks to the insurer in exchange for premium payments. This arrangement allows you to protect yourself or your assets against unforeseen events, such as accidents, natural disasters, or liability claims. The beauty of risk transfer lies in the peace of mind it offers – knowing that you won’t bear the full financial consequences of covered events. It is important to choose insurance policies that align with your unique needs and circumstances, ensuring that the risks you transfer to insurers are well-matched with the protections they provide.
Know What You’re Uninsured For
To make informed decisions about your insurance coverage, it’s crucial to know exactly what you are uninsured for. Many policyholders assume they have comprehensive protection, only to discover gaps in their coverage when a claim arises. Therefore, it’s essential to read and understand your insurance policy thoroughly. Take note of exclusions, limitations, and any scenarios that may not be covered. Regularly reviewing your coverage and discussing it with us as your insurance broker can help you identify areas where you might be underinsured or exposed to risks. By proactively addressing these gaps, you can better protect your financial well-being and ensure you have the right insurance in place for your specific needs.
In summary, insurance policies have a role to play in your personal and business life, but so too does self-insurance. If you took out every policy that was available to you, you may not have enough funds to run your business! Alternatively, if you don’t take out enough policies (or at least the most relevant ones) you may have not the funds to repair or replace the damage, including paying solicitors to defend you. It’s a fine balance but luckily as your local insurance broker, we’re ready whenever you are to discuss this with you. When you make informed decisions, you’re better off in the short and the long term.
Give us a call today. We’re here to help protect what’s important to you.