What is the meaning of self-insurance?

• A. The act of purchasing multiple insurance policies
• B. Setting aside money to pay for potential losses
• C. The practice of avoiding insurance altogether
• D. Insuring oneself against all possible risks

Answer: (B)

Self-insurance refers to the practice of setting aside funds to cover potential losses instead of purchasing an insurance policy from an external provider. This approach allows individuals or businesses to manage their own risk by creating a reserve that can be used to pay for unforeseen expenses or damages. By doing so, they hold the responsibility for any losses that may occur, which can be more cost-effective for those who are capable of absorbing the financial risk.

This option accurately reflects the essence of self-insurance, which emphasizes financial preparation for potential future expenses rather than transferring risk to an insurer, as is the case in traditional insurance practices. The idea is that individuals or companies might prefer to save a certain amount of money over time, thus maintaining better control of their financial resources while preparing for any possible incidents.