In which situation might a business choose self-funding?

In which situation might a business choose self-funding?

• A. When they can easily predict their insurance claims
• B. When they want to avoid paying for employee benefits
• C. When they have unstable cash flows and high risks
• D. When it is more cost-effective than premium payments

Answer: (D)

A business might choose self-funding when it is more cost-effective than paying for traditional insurance premium payments. Self-funding allows companies to pay for their own claims and benefits directly instead of relying on an insurance carrier. This approach can significantly reduce costs for businesses that have a good understanding of their risk levels and claims history, as they avoid the additional expenses that come with purchasing commercial insurance. Self-funding can provide increased cash flow flexibility since businesses retain the premiums they would otherwise pay and can invest that money elsewhere. Additionally, it enables companies to tailor their benefits and claims management according to their specific needs rather than conforming to standard insurance policies. This financial management of risks often leads to savings over time, particularly for businesses that have predictable healthcare usage or lower claims frequency. While some other options discuss scenarios that might lead businesses to self-fund, they do not directly relate to the fundamental financial motivation behind choosing self-funding over traditional insurance — that is, finding a more cost-effective solution.

A business might choose self-funding when it is more cost-effective than paying for traditional insurance premium payments. Self-funding allows companies to pay for their own claims and benefits directly instead of relying on an insurance carrier. This approach can significantly reduce costs for businesses that have a good understanding of their risk levels and claims history, as they avoid the additional expenses that come with purchasing commercial insurance.

Self-funding can provide increased cash flow flexibility since businesses retain the premiums they would otherwise pay and can invest that money elsewhere. Additionally, it enables companies to tailor their benefits and claims management according to their specific needs rather than conforming to standard insurance policies. This financial management of risks often leads to savings over time, particularly for businesses that have predictable healthcare usage or lower claims frequency.

While some other options discuss scenarios that might lead businesses to self-fund, they do not directly relate to the fundamental financial motivation behind choosing self-funding over traditional insurance — that is, finding a more cost-effective solution.