Self-insurance involves setting aside your funds to cover potential losses rather than purchasing traditional insurance. Rather than paying premiums to an insurance company, you're essentially becoming your own insurer by building up a fund to handle claims yourself.

Some large companies self-insure their employee health benefits, while individuals may self-insure for smaller risks, such as minor car repairs or phone replacements. The upside? No insurance premiums, and you keep any money you don't use. The downside? You're on the hook for the full cost if something expensive happens. Self-insurance works best when you have substantial savings and can afford to absorb significant losses without derailing your financial security.