What is the defining characteristic of self-insurance?

Self-insurance is characterized by the practice of setting aside money to cover potential future losses, rather than transferring that risk to an insurance company through premium payments. In this approach, an individual or business essentially acts as their own insurer by reserving funds that can be used to pay for claims or losses as they occur. This allows for greater control over the funds and potentially reduces overall insurance costs, as there are no premiums paid to an external insurer.

While paying premiums to an insurance company is a common characteristic of traditional insurance, it directly contrasts with the self-insurance model. Government backing for claims typically applies to certain types of insurance plans or limited cases, rather than to self-insured arrangements. Pooling resources with other members can be related to certain forms of insurance arrangements or risk-sharing, but again it does not define self-insurance, where the focus is on individual financial responsibility for losses. Thus, the defining characteristic of self-insurance is indeed the practice of setting aside money for potential losses.