The lowdown on a deductible vs self insured retention…
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People often ask us about the details of commercial insurance options. Here’s a synopsis about how insurance deductibles differ from self-insured retention as explained in a recent Canadian Underwriter article:
“A “self-insured retention” [SIR] is effectively the same thing as a deductible in a contract triggered by an insurer’s duty to defend, an Ontario court has ruled in a case involving an agreement between an elevator contractor and the building owner/property manager. “Even if the SIR is not technically a deductible, they are obviously similar and functionally related,”1
“A self-insured retention is an amount than an insured retains and covers before insurance coverage begins to apply.”2
It’s the intent that matters…
Deductibles vs self-insured retention. Insurance policies are intended to put the policyholder back in the position they were prior to a loss or claim situation. This being said, nearly every business insurance policy will include some method to ensure the insured participates in the loss or claim.
4 reasons why | Deductibles or self-insured retention…
An insurance company may choose to impose a deductible or a self-insured retention on a policy. Here are some reasons why:
- Limits or reduces the amount the insurer has to pay for each claim
- Discourages insured’s from submitting claims
- Forces the insured to have some skin in the game
- Eliminates the reporting of small claims
So, what’s the real difference?
Deductibles and self-insured retentions may be used interchangeably for all the reasons above. There are also some important differences. These become increasingly important the larger the amounts become.
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. Specifically…
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Sources: 1,2 Canadian Underwriter: What’s the difference between a “self-insured retention” and a deductible?