What is self-insurance or self-funding?
Self-insurance, or self-funding, is when the employer or plan sponsor assumes the financial risk for providing benefits (in this case Disability benefits) to its employees. In practical terms, self-insured employers pay for each claim as they are incurred instead of paying a fixed premium to an insurance carrier, which is known as a fully-insured plan. Stop loss coverage is often used to provide some protection to self-insured plans. A self-insured employer may set up a special trust fund to earmark money (corporate and employee contributions) to pay incurred claims. Short-term Disability benefits are ideal candidates for self-insurance. Costs are predictable and the individual claim, even one that hits the maximum plan coverage limit, is based on the employee’s pay and lasts less than a year. In fact, many employers already have self-insured disability plans, but don’t think of them as self-insured since they are funded through payroll. Sick pay and salary continuation plans are almos
