One reality of life is that risk is ever present. It exists in our commute to work, in our investment choices, and in our lifestyle decisions. Some risks can be transferred to an insurance company (such as auto or homeowners), while others we assume ourselves.
When you choose to bear the financial burden of an adverse event, you are engaging in self-insurance.¹
You may self-insure by assuming the entirety of a financial risk, or a portion of it. For example, the deductibles you have on your insurance policies are an expression of the portion of financial risk you are willing to assume.
If you want to self-insure, you should consider two action steps.
The first is to attempt to manage risks, such as installing a home alarm or not texting and driving.
The second step is to create a cash reserve to have available for expenses that are associated with any losses you may suffer.
If you choose to self-insure, here are some tips that might help you manage the costs:
The reserve fund you may create to pay for potential financial losses should be kept in highly liquid assets, such as money market mutual funds.³
Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
Ultimately, the decision to self-insure—and to what degree—will be a function of how much risk you can afford to take on.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.