What is meant by self-insurance?

Self-insurance refers to the strategy of coping with risks by setting aside a specific amount of money to pay for potential losses, rather than purchasing traditional insurance coverage from an insurance company. This method allows individuals or organizations to handle their own risk management by allocating funds that can be used in the event of a claim, thereby avoiding the costs associated with insurance premiums.

This approach can be beneficial in situations where the likelihood of a claim is low, or where the costs of purchasing insurance would exceed the costs of directly managing potential losses. It requires careful financial planning and risk assessment, as the entity must be prepared to cover expenses that would typically be absorbed by an insurance provider.

The other options describe different concepts related to insurance but do not accurately define self-insurance. For instance, insurance provided by an employer pertains to a standard employee benefit package; employing insurance agents relates to acquiring coverage, and collective insurance policies refer to agreements within communities, none of which capture the essence of self-insurance effectively.