In which area does "self-insurance" primarily focus?

In which area does "self-insurance" primarily focus?

• A. Transferring risk to an insurance company
• B. Retaining risk instead of transferring it
• C. Only covering catastrophic losses
• D. Providing coverage for mandatory types of insurance

Answer: (B)

Self-insurance primarily focuses on retaining risk instead of transferring it. This concept involves an individual or organization setting aside funds to cover potential losses rather than purchasing insurance from a third party. By retaining the risk, entities effectively become their own insurer, which is particularly common in scenarios where they feel capable of managing and covering their own claims, such as predictable small losses. This approach allows for greater control over financial resources and potential savings on insurance premiums. It is often used by businesses for risks they can accurately predict and manage, rather than for uncommon or catastrophic risks that would typically require traditional insurance transfer. This fundamental understanding of self-insurance underlines its practical applications and financial implications.

Self-insurance primarily focuses on retaining risk instead of transferring it. This concept involves an individual or organization setting aside funds to cover potential losses rather than purchasing insurance from a third party. By retaining the risk, entities effectively become their own insurer, which is particularly common in scenarios where they feel capable of managing and covering their own claims, such as predictable small losses.

This approach allows for greater control over financial resources and potential savings on insurance premiums. It is often used by businesses for risks they can accurately predict and manage, rather than for uncommon or catastrophic risks that would typically require traditional insurance transfer. This fundamental understanding of self-insurance underlines its practical applications and financial implications.