Self-Insured Retention – What It Is & Isn’t
What Is A Self- Insured Retention?
Self-insured retention (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. Thus, under a policy written with a self-insured retention provision, the insured (rather than the insurer) would pay defense and/or indemnity costs associated with a claim until the self-insured retention limit was reached. After that point, the insurer would make any additional payments for defense and indemnity that were covered by the policy.
A 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, 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.
See also deductible.
ALIGNED can provide your with more information about how a self insured retention (SIR) works as well as how it differs from a deductible.
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