What it means
With a self insured retention, or SIR, the insurer’s obligation does not start until the insured has paid the retention amount toward a covered claim. The insured often handles or pays for the claim, including defense costs, until the retention is met.
SIRs are common on umbrella policies, where the retention applies to claims the umbrella covers but the underlying policies do not. They also appear on some primary policies for larger or higher risk businesses.
An SIR can create issues for additional insureds. Some policies require the named insured to satisfy the retention, and contracts sometimes limit or prohibit SIRs above a stated amount.
An example
Canyon Crest Grading’s umbrella has a 10,000 self insured retention. A claim that the general liability policy excludes but the umbrella covers costs 45,000. Canyon Crest pays the first 10,000 itself, and the umbrella insurer pays the remaining 35,000, subject to its terms.
Names in this example are fictional.
See this term in your own contract.
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What is the difference between an SIR and a deductible?
With an SIR, the business pays losses and often defense up to the retention before the insurer is involved. With a deductible, the insurer usually handles and pays the claim, then recovers the deductible from the business. The difference affects cash flow, claims control and how additional insureds are treated.
Why do contracts restrict self insured retentions?
Clients want claims paid promptly and worry that an additional insured could be left waiting while the named insured funds a retention. Some contracts cap the SIR or require the business to disclose it and guarantee payment. Check those terms against the actual retention on your policies before signing.
General information only. It is not legal or insurance advice. Only issued policy documents and endorsements describe actual coverage.