When does 'self insuring' make sense?

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 you’re thinking about cutting your insurance or going down the self insure road, some considerations:

  • Unless you’re 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?

  • Yes
  • No

0 voters

Do you self insure in any areas?

  • Yes
  • No

0 voters

With taking care of your personal details in mind, if you do self insure - what has your experience been like? If you don’t self insure, tell us your rationale.

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I would like to suggest that insurance in that area goes beyond mere financial considerations. Financially you may be better off self-insuring that risk, a risk that many consumers would indeed be able to bear but there’s also the question of convenience. Just being able to call someone to get the problem sorted out has a non-financial benefit. It may take you much longer if you organise fixing the problem yourself. After all, you don’t have a network of car-knowledgeable people with spare parts etc. available at your beck and call.

Another factor to throw in is CTP, which by name and nature is compulsory. However most people would not be wealthy enough to bear the risk there anyway.

A final point … in respect of health insurance (or indeed anything else that involves government), there is a small risk that your decision to self-insure is invalidated by a change in government policy / regulation / legislation. It is extremely difficult to quantify that risk.


I self-insure for pet medical expenses but that is not a conscious decision or anything planned by way of regular contributions.

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Self insurance would work if one isn’t risk adverse and takes a punt that a catastrophic event won’t occur (house burning down, car written off, dying/suffering permanent disability etc).

If one doesn’t have a catastrophic even during their life, then self insurance makes sense. How do we know if one will occur - we don’t - and while some risks can be mitigated, self insurance is still a gamble in many respects.

If a catastrophic event, does occur, it could be crippling financially if one was self insured.

It will be only at the end of one’s life determining whether self insuring or taking our a retail insurance insurance cover to spread the risk in the case of a catastrophic event paid off. Hindsight is a wonderful thing…only if the decision made proves to be successful.

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I think the OP covers that. It is not saying that you punt that the event doesn’t occur - because if you are prepared to punt on that then there is no need for either self-insurance or to pay an insurance company. It is saying that you assume that the event will occur, and save for it - and then goes on to acknowledge, specifically in the three areas that you list,

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.

Let’s say it’s going to cost $1m to rebuild your house after it burns to the ground. Let’s say your net worth is $100m. You might say “whatever”. I can afford that - so I am OK to self-insure. Let’s say your net worth is $1m. You are basically wiped out (and no amount of saving, realistically, is going to fix that). So you choose to pay an insurance company.

There there’s the moral hazard option of “taxpayer-insured” i.e. those who choose to do nothing knowing that the government will be guilted into picking up the tab - but that could be getting controversial. :wink:

PS As most people are borrowing money to buy a house, they may not have a choice about insurance. The lender may insist on it.

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You still may, one may wish to reduce risks associated with minor or higher likelihood events such as a minor car accident, burglary, one off medical condition etc. In such case self insurance may start to be a proposition to paying a retail premium where the retail premium is likely to also cover catastrophic events or cover one isn’t interested in having.

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I ask myself each year if it is worth continuing my comprehensive car insurance. The insured value is nowhere near what it would take to replace the car with a suitable second hand one, let alone a new one.

In reality I am insuring myself for a second party event. I have an accident, my fault, with another very expensive car. No insurance, and the other party is coming after you big time.

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Have always had since the day started work and separate bank account for the health insurance money I would have spent on health insurance. Has a good tidy sum in the account.
My mother was insistent I didn’t waste money on health insurance and to find my own. Good Scots lady that knew how to save and make a dollar.
My new house insurance went up from $465.00 last year to $535.00 for this year which thought was a steep increase. Couldn’t get it reduced. Other companies would only match the price.

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Is there a difference between “Self Insure” and not having insurance?

‘Self insuring’ for me assumes you put something purposefully aside to cover the contingencies. It may be personal savings for which one has set a minimum balance, or the redraw value on the home loan, or some other fall back.

Is there a third possible response to the survey when one can’t afford the insurance but one can’t cover the risk of loss, IE ‘I have no insurance or personal capacity to replace essential items if they are lost’.

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I’d agree - this is what I do, though the fund is complex in it’s use sometimes, I deliberately save significantly more than the insurance on some items previously cost, all of which is offset on my mortgage. The only question in my mind as the time rapidly approaches, what to do when I have more in offset than the mortgage - probably just pay the mortgage down for a bit until the differential of offset and remaining mortgage allows me to pay it out with a substantial buffer still left in what was the offset …

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I have self-insured for things like Pets as I did before Pet Insurance was a thing. Items that involve an unknown quantity - particularly third party - I have continued to insure. While I could afford to replace the 20yr old car, I have no idea of other claims for property, injury or death that may be caused.
Extras Health insurance is becoming less attractive with annual and life-time limits. My insurer would allow a roll over if you didn’t use it that year eg no new glasses one year means you could get two in a subsequent year; now if not used, it is lost. Being a long time contributor I am coming up against Life Time Limits. I keep records, and the last 4 years I have paid more than I successfully claimed.

I insure the house because the cost to demolish & rebuild would exceed our contingency fund and the likelihood of a bank loaning to an elderly couple with low income is remote. The new house would not lift the capital value of the property by the difference, so it would cost us more long term. Eg if the property was bought for $400k, the land worth $100k, a demolish & rebuild to current standards might cost $500k and property sell for $500k, thus costing us $500k + $100k loss.

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Injury and death are covered by CTP, which is mandatory by law anyway. You legally can’t self-insure and only the seriously wealthy would want to.

However, as you say, property is another matter.

Often enough you see someone losing control of a vehicle and ploughing through someone’s fence, yard, house, … The total property damage could be quite high. So only the wealthy would want to self-insure that risk.

Then, in a different scenario or dare I say it as part of the same “incident”, there’s the other guy’s car, which is always the most expensive in the neighbourhood. :wink:

Don’t worry, you will catch up in the last year of your life. :wink:


One point that hasn’t been explicitly brought out yet is that “to self-insure or not to self-insure” is not actually a binary question. By adjusting the excess, you can adjust the balance between self-insuring (completely) and not self-insuring (at all). You can decide how much of the risk to take on. However insurers don’t typically embrace that very much, despite the fact that it could reduce their overheads by eliminating the processing of so many nuisance claims.

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I once queried what I thought was the relatively high price of CTP in the NT - I was told that in other jurisdictions CTP covered only ‘other people’ where in the NT it covered the ‘insured’ as well, who one wouldn’t think is a third party (which begs the secondary question, who is a second party?). I’m not a lawyer or an insurance expert, but it does trigger the idea that it’s worth knowing more about what is really covered, especially when one pays a few thousand per year in CTP. Also, this may have changed when the NT TIO was sold out to Allianz, a sad but familiar story to most …

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I don’t know but I will hazard a guess that

  • the first party is the car being driven by the at fault driver
  • the second party is any other car involved in the accident
  • the third party is any person, other than that driver, who is injured or killed in the accident

So that would mean that in the NT (at that time) the exclusion “other than that driver” is removed.

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Best to go to the horses head?
Rego is a state or territory thing. None think the same and if by chance they do, saying it differently reassures your state/territory is doing it better.

For QLD no need to guess what a 1st, 2nd, or 3rd party is. They avoided all reference.

P.S.
CTP does not cover one against a claim for property damage/loss. It is an added cost provided through private vehicle insurance. Surprising how many choose not to.

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I don’t buy pet insurance or extras health cover as I consider the returns aren’t worth it. I used to work in health and became aware that many private specialists won’t take on uninsured patients. It’s too risky for the specialist. So I buy top level hospital cover

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I was thinking along the same line after I posted but I should have searched before posting :slight_smile:

What does third party mean?
There are three parties to CTP. The first party is the owner/driver of the vehicle ‘at fault’. The second party is the CTP insurer of the vehicle ‘at fault’. The third party is the injured person.

I found a few references that suggest the insurance industry doesn’t commonly use the term ‘second party’, of course most of us just say ‘the insurer’ or ‘the insurance company’. I bet if you asked around who the second party in the accident was, most people would come up blank …

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Never ever heard anything like that.

What ‘risk’.

I definitely don’t think health insurance in any form is good value. My ‘health insurance’ HEALTHY bank account screams that at me.

The issue of risk generally refers to surgery not general medical care. Surgery involves risks because of possible complications and the need for longer hospitalisation and the possibility of ICU. So these risks result in far more costs that an uninsured patient may not be able to meet. Just one day in ICU costs thousands of dollars. So many surgeons did not accept uninsured patients.

But is private health insurance really insurance?

Is it more a way to pay for our health system, both public and private, encouraged by the Government who has to pay for it, by various incentives and penalties.

Where is this coming from?
I have never ever had issues with specialists not seeing me because I am not insured. Truly sounds like boloney from health insurance companies.
Unfortunately have seen more than my fair share of specialists, and again this coming fornight. None that I have seen previously.
Paid my taxes all my life including the Medicare levy. Most now you only have to pay the difference as they bulk bill Medicare and you only pay the difference.

Many people today cannot afford the out of pocket expenses and not been covered for how much the specialists and hospitals charge over the scheduled fee.