Self-Insured Retention vs. a Deductible

Self-Insured Retention – What it is & isn’t

Are you wondering about self-insured retention in Canada? It’s important to start by understanding exactly what this insurance term means. Self-insured retention (also known as SIR) is defined as a dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss.

This means that, under a policy written with a self-insured retention provision, the insured (rather than the insurer) pays defense and/or indemnity costs associated with a claim until the self-insured retention limit is reached. After that point, the insurer would make any additional payments for defense and indemnity that are covered by the policy.

How things differ. Self-insured retention vs. a deductible…

In contrast, under a policy written with a deductible provision, the insurer would pay the defense and indemnity costs associated with a claim on the insured’s behalf and then seek reimbursement of the deductible payment from the insured.

For example, let’s assume that two policies are identical, except for the fact that Policy A is written with a $25,000 deductible, while Policy B contains a $25,000 self-insured retention. Also assume that defense and indemnity payments for a given claim total $100,000.

In the event of a claim under Policy A, the insurer would pay the $100,000 in defense and indemnity costs that were incurred. After the claim is concluded, the insurer will bill the insured for the $25,000 in payments made on the insured’s behalf. In the event of a claim under Policy B, the insured will pay the first $25,000 of defense / indemnity costs, after which, the insurer will make the additional $75,000 in defense and indemnity payments on the insured’s behalf.

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We can answer your questions about self-insured retention in Canada…

ALIGNED brokers can provide you with more information about how a self-insured retention (SIR) works as well as how it differs from a deductible.

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