What is the process of establishing a monetary fund to cover the cost of a loss called?

The process of establishing a monetary fund to cover the cost of a loss is known as self-insurance. This concept involves setting aside a specific amount of money to pay for potential losses that may occur, rather than transferring the risk to an insurance company. Self-insurance can be particularly useful for organizations or individuals who want to manage their risk costs and maintain control over their funds.

In this scenario, the individual or entity effectively becomes their own insurer for certain risks by creating a fund from which they can draw when a loss occurs. This process allows for more flexibility and can be a cost-effective alternative to purchasing traditional insurance, especially for predictable and manageable risks.

Understanding self-insurance is crucial in the realm of personal lines insurance, as it helps agents and clients weigh the benefits of either creating their own fund for potential losses or opting for coverage through an insurance provider.