The cost of various types of insurance continues to rise, and thanks to increased cost of living pressures, many households are taking a look at their budgets and looking for ways to save. Could self insurance, where an individual regularly adds money to an account to cover themselves rather than paying a third party, be an option to come out financially ahead while maintaining a reasonable degree of security?
Depending on the circumstances and the type of insurance, some modelling suggests self insurance could be a good option.
UK consumer group Which? recently did some self insurance modelling over a 10 year period on pet insurance, dental cover (we would call extras) and breakdown cover (Roadside assistance).
Factoring in regular deposits/premiums, policy benefits and restrictions and a number of hypothetical scenarios drawn from research, self insurance came out ahead in almost all cases. The exception was one pet insurance hypothetical, in the event of potential outcome where there are multiple expensive vet treatments required.
While not strictly self insurance, modelling from CHOICE drawing on 85,000 scenrios from periods 1-20 years indicated that in most cases delaying or avoiding health insurance would leave people financially ahead, even factoring in addition of Lifetime Health Cover loading. If you need to pay the The Medicare Levy Surcharge, buying budget insurance that covers virtually nothing will still leave you technically ahead, but the benefit is reduced.
Of course there are areas where unless you are extremely wealthy, self insurance may not be an option such as home, travel and car insurance. Modelling from GlobalData indicated that home insurance increased 5.9% in 2021. They estimate the increased incidence of natural disaster will leave as much as 4% of homes as uninsurable by 2030.
If youâre thinking about cutting your insurance or going down the self insure road, some considerations:
- Unless youâre speaking to a licensed advisor about your individual circumstances, consider all advice as general. For big decisions, consider getting professional advice where possible
- Insurance is about risk management - if you self insurance, are you happy with your level of security in a reasonable worst case scenario?
- Self insurance can take discipline, and you may need to be confident researcher
- Apart from financial benefits, there may be other pros to self insuring, such as no surprise policy restrictions, excess and no need to argue with an insurer over a claim
Have you cancelled an insurance policy for budget reasons?
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Do you self insure in any areas?
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With taking care of your personal details in mind, if you do self insure - what has your experience been like? If you donât self insure, tell us your rationale.