Life & Health Insurance Practice Exam 2025 – Your All-in-One Guide to Exam Success!

The approach that establishes a self-funded plan to cover potential losses is self-insurers. This option represents a method where an individual or a business takes on the financial risk of insuring against specific losses. Instead of purchasing an insurance policy from an insurance company, self-insurers allocate funds into a reserve to cover any potential claims or losses that may arise. This strategy can provide greater control over the costs and claims process, as well as potential savings on premiums.

For organizations, self-funding often provides flexibility in how they manage health benefits and can be particularly advantageous for larger companies that have sufficient cash flow to handle potential claims. This method requires careful planning and risk assessment to ensure that the set-aside funds can adequately cover unpredictable costs. By opting for self-insurance, entities can tailor their coverage to better meet their specific needs rather than relying on a traditional insurance policy.

Other options, while related to insurance, do not focus on the concept of self-funding to the same extent. Reciprocal insurance involves members exchanging insurance coverage among themselves, while reinsurance pertains to insurance that insurers purchase to manage risk. Underwriting, on the other hand, involves assessing risk and determining the terms of coverage but does not concern the self-funding aspect directly.