these comments may well belong in the "DUH!" class, it
is sometimes easy to forget exactly what it is you're trying to
accomplish in buying insurance.
are more than a few business people who could best be described
as "Insurance happy." These are the prospects insurance
agents dream about. Some buyers seek protection against every
conceivable misfortune and seem to be willing to spend unlimited
amounts of money. If this is your problem, insurance may be
the least of your concerns.
generally make good decisions, but sometimes without doing some
simple math. Consider this for any property valued in total at less
than $5,000 and with a useful life of 5-10 years or more: If the
sum of the predicted five-year premium plus the deductible on an
item exceeds the cost of replacing it, insurance is almost certainly
not prudent. This is especially so in the new era, as technological
advance and rapidly improving productivity in the manufacture of
most equipment and structures may well motivate you to seek replacement
anyway. This is due to the future likelihood that a functionally
improved product may be available at lower cost. By self-funding
your entire risk instead of handing premium to an insurer, you prepare
the means for replacement following loss, or at a time when you
schedule it. (For items at high risk for fire, theft or other
loss, there could certainly be numerous exceptions, however property
at higher risk is likely to be equally costly to insure.) You are
admittedly assuming some potent risk in the early years, but the
potential benefit after five years normally would far outweigh it.
Clearly, the expected useful life of your item must also be a factor,
as well as the discipline to actually create funding.
if you self-fund an insurance reserve using your own money, you
don't have the inconvenience and general annoyance of documenting
losses to some claims adjuster & hoping the fine print doesn't
void your claim. You also reap the benefit of whatever interest
the fund may earn and save the cost of insurer profit which would
be built into your premium payment.
your uninsured item happens to be stored with ten other items of
value that are also self-insured, or it is subject to the coinsurance
requirements in a larger policy, obviously the math no longer works.
reasoning or variations of it are routinely applied by insurance
buyers on a much larger scale, depending on their business size,
operations, risk tolerance and the particular type of property at