Self Insurance
The term self insurance does not mean no insurance. A business may find that insuring a specific risk is simply too expensive to insure commercially; it can then decide to self insure by setting up a fund from where losses will be paid. Sometimes very large risks will be insured and smaller losses carried by the business itself. The same principle can be used in personal car insurance.
The excess payable in car insurance can be seen as a form of self insurance. One should provide for excesses by setting up a savings account where you build up a reserve for emergencies and insurance excess amounts. This will be called responsible self insurance.
Another way of looking at self insurance is if you should decide to carry small claims yourself rather than claiming from your car insurance policy and thereby jeopardizing your no-claim – or cash back bonus. Accepting a higher excess is also a form of self insurance, this will save you money on your monthly premiums and the savings could then be utilized for your self insurance fund.
The extreme form of self insurance will be where a company sets up its own insurance company to handle losses of the company. This is called a captive insurance company.