One of the biggest decisions for a business is whether to self-insure or purchase insurance from an external provider. Self-insurance is when a company assumes the risk for certain types of losses, such as property damage, liability, and healthcare costs. It can be a cost-effective option for some businesses, but it’s not the right choice for every company. The size of a company is one of the key factors to consider when deciding whether to self-insure. In this article, we’ll discuss which size of a company should be self-insured and what factors to consider.
Before we dive into the details, let’s define what we mean by “size of a company.” For our purposes, we’ll use the number of employees as the primary metric. This is a common way to categorize businesses, and it’s a good indicator of the company’s resources and needs.
Small Businesses
Small businesses are typically defined as having fewer than 50 employees. They often have limited resources and may struggle to afford insurance premiums. Self-insurance can be an attractive option for small businesses that want to save money on insurance costs. However, small businesses should be cautious when considering self-insurance, as they may not have the financial resources to cover large losses.
- Small businesses should consider self-insurance for low-risk areas, such as property damage or workers’ compensation.
- Small businesses should carefully evaluate the potential risks and costs of self-insurance before making a decision.
- Small businesses should consider purchasing stop-loss insurance to protect against catastrophic losses.
Mid-Sized Businesses
Mid-sized businesses are typically defined as having between 50 and 500 employees. They often have more resources than small businesses, but they may still struggle to afford insurance premiums. Self-insurance can be a viable option for mid-sized businesses that want to reduce insurance costs and have more control over their insurance programs.
- Mid-sized businesses should carefully evaluate their risk tolerance and financial resources before deciding to self-insure.
- Mid-sized businesses should consider purchasing stop-loss insurance to protect against catastrophic losses.
- Mid-sized businesses should have a well-designed self-insurance program that includes risk management and loss control measures.
Large Businesses
Large businesses are typically defined as having more than 500 employees. They often have significant financial resources and can afford to purchase insurance from external providers. However, self-insurance can still be a viable option for large businesses that want more control over their insurance programs and can manage the risks associated with self-insurance.
- Large businesses should carefully evaluate their risk tolerance and financial resources before deciding to self-insure.
- Large businesses should have a well-designed self-insurance program that includes risk management and loss control measures.
- Large businesses should consider purchasing stop-loss insurance to protect against catastrophic losses.
Conclusion
Self-insurance can be a cost-effective option for businesses that want more control over their insurance programs. However, businesses should carefully evaluate their risk tolerance and financial resources before deciding to self-insure. Small businesses may have limited financial resources and should be cautious when considering self-insurance. Mid-sized and large businesses can benefit from self-insurance, but they should have a well-designed self-insurance program that includes risk management and loss control measures. Purchasing stop-loss insurance can also be a good way to protect against catastrophic losses.