State Farm Insurance License Practice Exam

What is self-insurance?

1. A method of purchasing insurance from numerous insurers

2. A strategy where individuals pay premiums to an insurer

3. An alternative where a party assumes its own risk

4. A type of insurance that covers personal liabilities

The correct answer is: An alternative where a party assumes its own risk

Self-insurance is a method where individuals or businesses assume their own risk rather than transferring that risk to an insurance company. When a party decides to self-insure, they typically set aside a certain amount of money to cover potential losses instead of paying premiums to an insurer. This approach can be beneficial for managing smaller or predictable risks that individuals or businesses can handle financially. By choosing self-insurance, the party maintains greater control over their risk management and may save on the costs associated with traditional insurance policies.