When you work for yourself or have a small business, you will need to consider getting insurance to safeguard your company from potential risks when they come. What type of insurance is there and which will benefit you more?
If you are unsure what captive insurance and self-insurance are so you can decide which is best for you, keep reading.
What Is Captive Insurance?
Captive insurance works like most other insurance programs in the sense insurance is provided by a carrier. Unlike general insurance, it is more complex and costly. However, it can be the ideal choice for businesses that want to be in more control over potential losses.
This is because you can view every unique aspect that creates a premium and you have the power in deciding the prices and benefits of the plan you choose. This is called “unbundling.”
You should always work with a captive insurance company that is structured in a way that allows you to maintain and grow profit. Those who choose captive insurance are also able to buy reinsurance and have another layer of safety against losses.
Another benefit is that captive insurance is able to share risks with other business owners with a similar mind. This allows enhanced risk transfer while allowing small businesses to benefit from this enterprise-like risk management.
What Is Self-Insurance?
Self-insurance is when an individual or a company chooses not to use insurance through a third-party. Instead, that person or business accepts full liability of risks. Should an issue arise, the money personally put aside is put to use to create their “own insurance company.”
For people who are self-employed as well as those who operate small businesses, self-insurance is looked at in a positive light. This is because it has the potential to improve business profits while minimizing the cost of premiums.
Self-insurance allows a person or business to gain access to information to make fully informed choices. In many cases, people who choose to self-insurance have small or predictable claims or risks that they believe they can cover.
There are some states that require a business to be able to meet specific requirements before being able to use self-insurance first. For example, they may be required to cover certain legal aspects first like workers’ compensation. In such situations, the right to be able to self-ensure is something that the state grants to larger businesses that are more stable.
Which Type of Insurance Is Better for Your Business?
When you are deciding to use captive insurance or self-insurance you need to consider which of the two will work better for you. Both are a form of funding options that are kept away for use when that company needs it in the future.
You are assuming a level of risk with both. The main difference is that self-insurers must use their own funds.
This does not mean captive insurance is the solution to your problems. It is, however, the better choice if you like the idea of general instance but want the ability to have more control over financial gains and losses.
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