It is a question that lingers on the minds of many, and well, yes you can. However, the bigger question will be, should you? Self-insurance in its most basic form involves setting aside an amount of money to cover for uncertainties in life. Self-insuring individuals do not involve third party insurance company but rather set aside a certain amount per period that amounts to a lump-sum at a certain time in future that can then be used to cater for unknown eventualities. There are several factors a potential self-insuring person should consider before starting. We take a look at a few of these.
Discipline
Depending on the math you come up with, can you consistently set aside say $100 per month without fail for the period you decide (which is probably long). With insurance companies, individual discipline is enhanced to a large extent by the penalties associated with non-payment of premiums. With self-insurance however, there are no penalties to not making the monthly contribution and the same can therefore be easily foregone. However, each period that you do not make your contribution will mean a reduced amount in the accumulated sum or in your investment pool at the end of the specified period.
Rising cost of Long-term Care
The cost of LTC keeps going up each year. Self-insurance implies that should you require long term care, the funds you will have accumulated will be the only means of covering the costs. However, with the annual rises in cost, the funds may not be enough to cater. With an insurance company, however, the cost is irrelevant especially if a period had been agreed upon at the onset of the policy. A good insurance policy with a reputable company will shield you from the risks brought about by inflation.
Period of care
Nobody knows with certainty for how long they might require long term care. Picture this, you take the self-insurance path and accumulate sufficient funds to last you four whole years of long term care perhaps because you feel four years is the average period one needs long term care. In real life though, you find yourself requiring long term care for more than ten years, will you really have saved up that much through a personal self-insurance scheme? Probably not
Care at a young age
It is generally assumed that the elderly people in society are the most likely to require long term care. However, there are several instances where catastrophes occur to people at relatively young ages and requiring them to have long term care. If you got on to a self-insurance scheme and required care at a young age, you will probably not have saved enough to cover all your needs.
However, even with the many disadvantages, self-insurance still has its benefits since it is virtually impossible to get a life insurance policy with a good company covering more than five years of care. For those with the required discipline and a relatively high income however, the advantages of self-insurance in the long term may just well outweigh the drawbacks.
