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Is Self-Insurance the Right Choice for Your Business?

Owners of small and medium sized businesses often face the dilemma of whether to farm out their workers’ compensation insurance or handle it in-house. This is an important decision that could have serious financial and operating implications for a business.

While there is no simple answer that would fit every company, there are some considerations that could help you make the right choice for your business.

Why Would a Company Self-Insure?

There are a number of potential benefits, including the potential for savings over traditional workers’ compensation insurance. In addition, companies want more control over loss prevention and more efficient handling of workers’ compensation claims.

Self-Insurance is Not the Best for Every Company

Although the cost savings and control offered by self-insuring is attractive, the truth is that this is not the best choice for every company.

First of all, it’s simply impossible for many companies. To be eligible for self-insuring, a company needs to obtain state approval, afford a security deposit and have at least a $500,000 net income average over the previous five years.

Further, there are numerous administrative costs and fees involved with self insuring.

Another, more practical cost or risk is the administration of self-insuring. Someone is going to have to handle the administrative duties, risk prevention, workers’ claims and other issues that arise. The primary reason many companies get workers’ compensation insurance is that it can be expensive to do it themselves.

What Should You Do?

Self-insuring is beneficial for some companies and not for others. The best thing you can do is work with an experienced attorney and calculate all of the potential costs and benefits to find out if self-insuring will benefit your company long-term.

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