When considering how to handle smaller insurance claims, the idea of self-insuring—paying out of pocket instead of filing a claim—can seem practical at first. Many business owners or decision-makers think, “Why not just handle the small stuff ourselves?” If a claim is under $5,000 and your deductible is $5,000 anyway, what’s the harm?
The Appeal of Self-Insuring Small Claims
On the surface, it seems like a smart strategy. If a claim falls below your deductible, there’s no payout from the insurance company. So, the thinking goes: just handle it internally, pay out-of-pocket, and avoid any impact on your premiums. This way, you’re not “punished” with higher pricing at renewal, and your loss ratio stays clean.
The Hidden Risk: Breach of Contract
Here’s the problem—what many don’t realize is that this approach can actually void your insurance contract. Most liability insurance policies (and insurance policies in general) contain language that requires any and all claims to be reported. By choosing to self-insure claims, even if they’re under $5,000, you may be making a unilateral decision that conflicts with the terms of your policy.
This isn’t just a paperwork issue. It’s a contractual obligation. If you handle claims independently, your insurer may argue that you failed to comply with policy conditions, and that can have serious implications if a claim turns out to be more complex or costly than it appeared at first.
The Bottom Line
Ultimately, while self-insuring small claims may seem like a way to save money or avoid premium increases, it’s a risky move that could backfire. The better approach is to carefully review your policy and consult with your broker before making any decisions about how claims are handled. It’s always better to protect the integrity of your coverage than to take on silent risk without realizing the full consequences.
