Wondering what’s the difference between a deductible and self insured retention?
People often ask us questions about their business insurance and one of the more common one’s is what’s the difference between a deductible and a self insured retention?
Before we answer this question we just wanted to explain why deductibles and self insured retentions exist in the first place as nearly all insurance policies include one or the other. Insurance policies are intended to put the policy holder back in the position they were prior to a loss, but nearly every business insurance policy will include some method to ensure the insured participates in the loss.
Some of the reasons why insurance companies impose a deductible or self insured retention
- Discourages insured’s from submitting claims
- Limits or reduces the amount the insurer has to pay for each claim
- Eliminates the reporting of small claims
- Forces the insured to have some skin in the game
So…what’s the difference between a deductible and a self insured retention?
Deductibles and self insured retentions are used interchangeably for all the reasons above, but there are also important differences between a deductible and self insured retention which become increasingly important the larger they become.
The answer to the question what’s the difference between a deductible and a self insured retention is that deductibles reduce the amount of insurance available whereas a self insured retention is applied and the limit of insurance is fully available above that amount.
For example, a policy with a $1,000,000 limit and a $100,000 deductible technically only provides $900,000 of insurance. In contrast, a policy with a $1,000,000 limit and a $100,000 self insured retention provides a full $1,000,000 of coverage after the claim exceeds $100,000.
Another important difference is that insurance companies usually handle claims from the beginning when a deductible is applicable, but often only get involved after a claim exceeds the self insured retention.