
This exact same principal can be used with insurance. If you're trying to decide between a high or low deductible plan, why not get the best of both worlds? Let's say the high deductible plan is $100/month and the low deductible is $250/month. You can go with the high deductible option, but act like you're paying the $250/month premium. But instead of giving that extra $150 to the insurance company, put that money in a special savings account (or better yet, an HSA).
At the end of the first year, you'll have $1,800 saved in that account. That's almost certainly enough money to cover whatever expenses you incurred above the lower deductible. This is what we mean when we talk about "Self-insuring". By saving the difference in deductible, you're giving yourself a nice financial buffer so the added risk of the higher deductible isn't actually a threat to you.
The best part is, once you save up enough extra money to cover the entire deductible, you can start keeping all the additional savings. In the example I gave, that means that you'd be saving $150/month and you wouldn't be accepting any more risk than you would with the low deductible (once you have saved enough).
