High Insurance Costs
If you have been looking for a way to purchase more amounts of insurance, more policies, or just cut your current insurance costs there is a way.
Self-insuring is a way to reduce your insurance costs by maintaining an adequate insurance reserve fund. By maintaining a personal reserve fund you are allowing yourself to acquire some of your risk. When you assume some of your insurable risk you can immediately reduce your current insurance costs, keep your premium rates down, and release extra funds to purchase additional insurance that you may need.
A self-insurance fund is basically a stash of cash set aside for you to use for your insurance needs. You will need to determine how much of an insurance reserve fund you will need for your particular insurance needs. By knowing what you will use your self-insurance fund for will help you determine how much to set aside.
Here are some examples of ways you can use your self-insurance reserve fund:
- Eliminate your need for some types of insurance policies that you can assume the risk yourself. For example, you may be able to eliminate purchasing extended warranties on appliances, full-coverage automobile insurance for a vehicle that is of little value, or insurance on valuables and jewelry by using your self-insurance fund to pay for the cost of replacing these items yourself.
- Make your auto and home deductibles larger. By making your auto and home insurance deductibles larger, you will be insuring yourself (through your self-insurance) for the amount up to the deductible which will enable you to immediately lower your premium payment.)
- Lengthening your disability waiting period. Everyone needs disability insurance and if you want to be able to afford it you can use your self-insurance fund to permit you to accept a longer waiting period before your disability insurance kicks-in which in-turn will enable you to have reduced premiums.
- Switch to “emergency medical health insurance.” By switching to a health insurance policy that only kicks-in after a large deductible, which is sometimes called emergency health insurance, you can save a substantial amount on your health insurance premiums. By using this type of policy, you will use your self-insurance to pay for your doctor visits and minor medical procedures and your emergency health insurance will be there as a safety net if a substantial medical emergency arises.
If you choose to self-insure yourself, you will want your money to work for you while it is waiting to be used. The best way to keep your self-insurance money working for you is to invest it. Your investments should be in short-term investments that can be quickly turned into useable cash without a large loss in value. These types of investments would include money market accounts and/or mutual funds. Avoid long-term investments such as stocks and bonds as they are not suitable for a short-term emergency fund such as a self-insurance fund. If you would like, you can also choose a savings account. Your return on a savings account will be lower but it will make quick and easy access to your money while at the same time earning a small return.