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In insurance, the word retention is always related to how a company handles its business risk. When you retain risk, it usually means youre not insuring it. The common alternative would be to pay an insurance company an annual premium to take that risk off your hands. Retention Meaning Definition - Founder Shield foundershield.com insurance-terms retention foundershield.com insurance-terms retention
The self insured retention is the amount of the loss the insured must pay before the umbrella policy would be required to respond. The retention would only apply when a loss is excluded from coverage under the primary insurance policy, but not excluded under the umbrella insurance policy.
Self-insured retention is 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. self-insured retention (SIR) - IRMI International Risk Management Institute term insurance-definitions International Risk Management Institute term insurance-definitions
As shown above, under a deductible plan the excess insurer is responsible for paying and defending all claims whereas with a SIR the insured assumes responsibility at a primary level.
For instance, if a car insurance policy has a $1,000 deductible and a loss is valued at $2,500, then the application of retention for that policy would clarify that the policyholder is responsible for payment of the $1,000 deductible. The insurers liability would thus be limited to $1,500.
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Self-insurance is a risk retention mechanism in which, rather than contractually transferring risk to a third party as it would in a traditional commercial insurance arrangement, a company sets aside money to fund future losses.
For instance, if a car insurance policy has a $1,000 deductible and a loss is valued at $2,500, then the application of retention for that policy would clarify that the policyholder is responsible for payment of the $1,000 deductible. The insurers liability would thus be limited to $1,500. Application of Retention: What it is, How it Works, Example Investopedia Insurance Investopedia Insurance
SIR does not erode the limit of liability. For example, if the insured has a $1MM Liability Policy and a $100,000 retention, the insured pays the first $100,000 for defense/damages, but the insurers responsibility of a $1MM Limit still remains. Deductibles vs. Retentions - Cavignac cavignac.com blog deductibles-vs-retentions cavignac.com blog deductibles-vs-retentions

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