How A Business Can Save Money With a Self-Funded Insurance Plan

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Are you looking to insure your business?

You’ve made a savvy business decision. Businesses, especially small ones, face a wide range of risks, from health pandemics such as COVID-19 to fierce market competition, theft and burglary, fires, and natural disasters.

You have two options: purchase insurance policies from insurance companies like the vast majority of businesses do. Or create and implement a self-funded insurance plan.

In this article, our focus is on self-insurance. Continue reading to learn how this strategy can save your business a significant amount of money.

But first off:

What Is a Self-Funded Insurance Plan?

A self-funded insurance plan is just what it sounds like. You insure yourself, instead of buying a policy from an insurance company.

In layman terms, think of it as a savings account. You put money into this account periodically or in a lump sum, only to use it for a certain purpose. If an employee gets hurt on the job and they need compensation, for instance, you’ll use these funds to compensate them.

A professional way of going about self-insurance is creating a captive insurance company. This involves creating an insurance company that’s wholly owned by your business. This company will be responsible for insuring your business.

Now that you know how self-insurance like captive insurance works, let’s focus on how it can save you money.

You Set Your Premiums

When you buy insurance from a commercial insurance company, it will assess your risks and set your premiums for that policy accordingly. In most cases, the premiums will be higher than you anticipated.

A self-funded insurance plan eliminates this. Since you’re in charge of insuring yourself, you’re in a position to set a premium that strikes the right balance between your risks or liabilities and your business’s financial situation. If this premium is lower than what you would have paid to an insurance company, you’ll make a saving.

Also, commercial insurance companies don’t typically customize insurance coverage to a small business’s needs. In most instances, you’ll need to choose from a number of policies that are already offered by an insurer. This way, you have little control over your premiums.

But when you’re self-insuring, you’ll be able to determine your exact coverage needs and set the premiums accordingly.

No Claims Filed Equals Money Saved

When your coverage expires and you haven’t filed a claim, one can argue that you’ve lost money. You’ll only get a sense of using your money when you’ve filed a claim and received compensation.

With a self-funded insurance plan, you won’t worry about your premiums going to waste because you didn’t file any compensation claim. It’s your money after all, and you can roll it on to the next year.

If you chose to shut down the business at any point, you’ll still have access to the money you had set aside in your self-insurance fund. On the contrary, closing your business when you have a commercial insurance policy would automatically mean losing the money you had already paid in premiums.

A Self-Funded Insurance Plan Will Save You Money

A self-funded insurance plan might not be a popular option among most small businesses, but it’s the right option for those that want to save money. From being able to set your premiums to getting to keep your money in case the insured event doesn’t happen, you have good reasons to choose self-insurance.

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