What amount of net worth is required to qualify for self-insurance after July 1, 1994?

• A. $2,220,000 net worth and $220,000 earnings in the past year
• B. $5,000,000 net worth and $500,000 earnings in the past year
• C. $5,000,000 net worth and average net income for the past 5 years of at least $500,000
• D. $7,500,000 net worth and $700,000 earnings in the past year

Answer: (C)

The requirement of a $5,000,000 net worth and an average net income over the past five years of at least $500,000 is the correct choice because it indicates a thorough evaluation of the financial stability and capacity of an entity to engage in self-insurance.

This criterion ensures that businesses have not only significant net worth but also a demonstrated track record of income stability. By using the average over five years, it mitigates the risks associated with one-off financial performance that might not be indicative of the company's ongoing viability. This extended period also helps to account for fluctuations in income, showcasing a consistent ability to generate earnings, which is vital for covering potential liabilities that self-insurers might face.

The requirement reflects a commitment to ensuring that only financially stable businesses can self-insure, protecting both the entity and the insurance infrastructure that relies on sound financial backers. This creates a safeguard against underwriting risks, promoting responsible practices within self-insured entities.