What is the best definition of self-insurance?

Self-insurance is best defined as the strategy where individuals or businesses set aside funds to cover potential losses rather than transferring the risk to an insurance company. By creating a dedicated reserve or fund, individuals can manage financial risks associated with certain events that may not warrant the expense of traditional insurance premiums. This approach allows them to have control over their costs and potentially save money over time, though it does require sound financial management and an understanding of the risks involved. In contrast, the other options describe different concepts that do not accurately capture the essence of self-insurance. For instance, relying on government aid does not involve personal financial management, while purchasing from multiple companies refers to diversified insurance coverage rather than self-insurance. Lastly, only purchasing insurance for catastrophic events does not constitute self-insurance, as it typically involves a reliance on insurance rather than self-funding potential losses.