What Is Self-Insurance and How Does It Work for Life Insurance?

What is self-insurance?

Self-insurance is exactly what it sounds like—it’s when a person chooses to insure themselves, rather than purchasing a traditional insurance policy. You can self-insure for life, home, auto, health insurance, and more. While some traditional insurance types are mandatory due to financing or legal requirements, life insurance is often optional. In this post, I’ll focus on self-insuring for life insurance.

How to Self-Insure

Self-insuring for life insurance means having enough money or assets in reserve to cover the financial needs that would normally be covered by a life insurance policy. These reserves could come from accounts like savings, checking, IRAs, 401(k)s, CDs, or even physical assets like homes, land, art, and collectibles. The goal is to have enough in reserve so that, when the time comes, these funds can be used for expenses traditionally covered by life insurance, such as funeral costs, debts, or income replacement.

Self-insuring can be an appealing option for those who want more control over their financial reserves and have the discipline to save, but it comes with both risks and benefits. In the next post, we'll explore how to prepare for self-insurance and make sure your reserves match your family’s needs.