Youíve got to have motoring insurance. That is to say, you have to have at least third-party insurance. That's the law. But big firms and rich folk sometimes self insure. They post a suitable cash bond which commits them to paying accident costs should they cause damage or injury to a third-party (meaning the other guy). And naturally, theyíll repair any damage caused to themselves or their own vehicles. On the plus side, these guys donít pay insurance premiums, as such, so if they donít get involved in a crash, or a fire, or a theft, the insurance is effectively free.
Is self insurance really an option for the average person? Well, perhaps not quite the average. But plenty of people could self-insure if they were really so-minded. It would involve looking at all your insurance outgoings (motoring, home, health, travel, etc) and working out what your total insurance risk is.
Then you could set aside sufficient money to cover that risk, perhaps by using savings bonds, stock and shares, whatever lump sum you have in the bank, and so on. Then, if you're wise, you could use some or all of this money for short term investments.
But it's complicated stuff, and you'd need to be financially astute (and if you've got sufficient funds to even consider self insurance, you might well be a whizz kid with money).
Motorcycle club self insurance
Alternately, a motorcycle club might consider pooling resources and setting aside a wedge of dosh to cover theft, accident damage, fire and third party claims. Especially third party claims.
For instance, a club of 500 members might charge each member £1,000 for their share of the fund. That would realise £500,000. At the end of the first year, three riders have suffered a loss or a fire. Or have had their bikes stolen. And the cost of that damage/loss totals £30,000.
£500,000 minus £30,000 equals £470,000, Divide that by 500 (members) and you'll see that each member now has £940 left in the kitty. Put another way, each member has paid out £60.
If a member decides to leave at the end of that first year, he or she walks away with that £940. But the club secretary might want to charge a small administration fee.
Now, the club might want to replace that member with another member, or hike the contributions from the other members of the group to replenish the "pot".
Alternately, during that first year you find that 20 members have incurred losses which totalled a whopping £200,000. Now you find that each member has to pay £400 for that first year (£200,000 divided by 500 members), and the pot is correspondingly short by £200,000 which will need to be replenished.
So each member has to stump up that £400 to stay in the insured group, or can leave minus that £400. That means their insurance has cost them £400 for the year.
If enough members leave without replenishing the pot, the other members have to make good the shortfall. Hence raised premium. Or the scheme would collapse.
Now you can ask yourself if the insurance companies are providing a good service at a reasonable price? Put simply, your premiums might look like a rip-off when someone else is carrying the risk. But they look a whole lot different when you self insure.
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