Self-insuring only works for "small losses"
Self-insuring is a plan that can only recommended for covering small claims.
Self-insuring at first may seem like an ingenious idea. Rather than handing over your hard-earned cash to insurance brokers, put that money aside each month into a savings account where it can earn you interest.
If an accident ever were to happen, that money - and the interest it has earned - will serve as your insurance policy. And if nothing ever does go wrong, then you have a spare fund for a rainy day.
Furthermore, ten per cent of people think insurance is a waste of money and 60 per cent claim to dislike taking out this type of cover, although appreciate that it is a price worth paying.
What is more worrying is that the website's research found that 39 per cent of people have no idea how much insurance cover they have, despite the fact that as a nation we typically fork out over £1,500 on six insurance products every year.
In light of this last figure, it is no wonder people have become reluctant to hand over this sort of money when it could be accruing them interest in a savings account.
However, although self-insuring sounds like a fool-proof plan, like so many money-spinning, thinking-outside-the-box ventures, it has many downsides that could wind up costing those who buy into it dearly.
The British Insurance Brokers' Association (Biba) is the UK's leading general insurance organisation representing the interests of insurance brokers, intermediaries and customers.
It warned consumers last month against the potential pitfalls of self-insuring, highlighting how this could go horribly wrong.
Graeme Trudgill, technical and corporate affairs executive of Biba, said: "There are legal requirements to take account of here, for motor insurance in terms of a road traffic accident liability.
"So I'd assume that no one would be looking to incorporate that within their [self-insurance]."
However, in terms of products such as house insurance Mr Trudgill does concede that self-insuring is something to consider when looking at "small losses which might befall you", such as a stain on the living room carpet or water down the back of the television set.
"But what you have to bear in mind is that household policies also include liability cover - personal liability for the owner/occupier, for example," he explained.
Liability cover means if the homeowner is sued - say, for example, if one of their children does someone serious injury when riding their bike - then the policy would cover their household items.
Mr Trudgill concluded: "I'm not sure that there would be many individuals out there that would want to put aside enough money to cover those sorts of circumstances."
Furthermore, self-insuring tends to only account for one thing going wrong at a time.
If a household was burgled at the same time the washing machine leaked and ruined all the downstairs carpets, not only would the individual be very unlucky, they would also be unlikely to be able to cover the costs.
