PSI Ohio Insurance Practice Exam

What does self-insurance primarily involve?

1. Funding through external insurance companies

2. Coping with loss without an insurance payout

3. Transferring risk to an insurance provider

4. Investing money to cover potential losses

The correct answer is: Coping with loss without an insurance payout

Self-insurance primarily involves coping with loss without an insurance payout, which means that individuals or businesses take on the financial responsibility for losses that may occur rather than relying on an external insurance provider. This approach allows them to reserve funds to cover potential losses, and often involves assessing risks and setting aside adequate resources to handle those risks if they materialize. Unlike traditional insurance methods, where risks are transferred to an insurance company (which is reflected in the other options), self-insurance requires a proactive approach to risk management, including budgeting for unforeseen expenses and preparing for potential losses without the expectation of receiving compensation from an insurance policy.