Massachusetts Health & Accident Insurance Practice Exam

In self-insurance, what is primarily maintained to cover possible losses?

1. Insurance policies

2. A fund

3. A high deductible plan

4. Government assistance

The correct answer is: A fund

In self-insurance, the primary mechanism used to cover possible losses is the maintenance of a fund. This fund is created specifically to set aside resources that can be used to pay for potential claims or losses that may occur. By allocating money into this fund, an individual or organization can effectively manage their own risk without transferring that risk to an insurance company. Establishing such a fund allows for greater control over the financial aspects of risk management, as funds can be tailored to the anticipated needs based on historical data or specific risk assessments. This approach is often taken by larger businesses or organizations that may have the capacity to absorb risks independently without the need for traditional insurance policies. Other options, like insurance policies, high deductible plans, and government assistance, involve transferring risk in different ways, rather than maintaining a fund dedicated to covering losses directly. These alternatives rely on third parties to manage risk, contrasting the self-sufficiency characteristic of self-insurance.