That's human nature, we either typically don't question important issues or we downplay important issues when everything is on track. Many, while in this frame of mind just don't put much weight behind the significant contribution that insurance can provide. This holds true until the earth shakes, a flooding rainstorm parks itself too long in your neighborhood , a wildfire burns uncomfortably close or when someone you know is involved in a serious accident. Any of these possibilities may be the wake up call that makes you question your back up plan. Insurance is the backup plan for most people. The question is: how good is your plan B at protecting you, when you need it most?
Should you ever find yourself questioning how you can afford to guard against the big dollar events you may find yourself (even unknowingly) looking at the self insurance approach. One can prepare for the big events by self insuring more of your smaller risks and having the insurance company cover the larger risks.
Self Insurance is not a new kind of insurance, just a method of insuring. In a nutshell, when you chose to self insure you are choosing to accept more risk with the dollar amounts that you can cover out of pocket.
One example, with auto coverage may be to chose higher deductibles, if you can afford to pay a higher deductible you can more easily raise your coverage limits higher. For example, if you currently have 50/100/50 auto coverage with $100 deductible on comprehensive and collision and you could actually afford to pay $500 or $1000 in a pinch you may consider pushing your deductibles higher to lower your premium. The lower premium will in return help you better afford the option of moving coverage limits up to maybe 100/300/100 limits or higher. The cost savings won't be straight across savings, but these changes would offset some of the expense and make it more affordable for you to move up.
You may say, well I just don't want to pay more then $100 or $500 if my car gets crunched. Sure, nobody wants to pay more, but keep in mind that claims should be an uncommon scenario and paying your deductible should make you consider if you really want to make a claim. Ideally a claim deductible should be kind of a pinch to pay, however not a serious obstacle. The lower the deductible, the more likely you will claim, which in turn will likely increase your premium for the next 5 years. Self insuring would have you weigh the cost of the damage to repair your vehicle. If the cost is close to your deductible, it may be worth insuring yourself (paying out of pocket for) the damage yourself, or leaving it, rather then making a claim. As I have mentioned before, claims impact your record whether they are your fault or not.
In another example let's say you have high coverage limits and you have low deductibles, windshield replacement, loaner car, roadside coverage and so on. One may consider chopping some of the smaller things that you could handle on your own and instead add on an umbrella policy that would add a million dollars of liability coverage and additional coverages. The point here is that you may be able to sweat the umbrella policy costing you around $200 a year, but totally unable to pay a million plus dollars out on a liability suit.
Earthquake coverage and Flood insurance shouldn't be overlooked. There are things that you will want to cover on your own, but earthquake or flood damage isn't one of them. Both earthquake and flood insurance have different deductibles and coverage limits available. If you can't afford to cover everything, it is still better to cover some of the damage.
Disasters just happen at inconvenient times, one has two choices:
1. Do nothing and sacrifice everything later
2. Make a plan to deal with a disasters now, while it's affordable and possible.
Insurance was created to help people through the really big dollar events, the catastrophes that no one would be expected to cover on their own; the events that drive too many people to GoFundme or similar sites today. In my opinion, too many focus on the bonus items that actually make higher coverage limits more financially unobtainable, thus making people more vulnerable to the real disasters.
To self insure really means that you discriminate between coverage options that are nice to have but are not necessary, verses having coverage limits high enough to cover threats that could financially devastate you and your way of life. Life is all about getting your priorities straight, self insurance deserves deep thought next time you are up for renewal.