What does the term "self-insured retention" (SIR) refer to in the context of insurance?

The term "self-insured retention" (SIR) refers to a specific type of deductible that is often a set amount the insured must pay out-of-pocket before the insurance policy responds to a claim. In essence, the self-insured retention operates similarly to a deductible but is generally associated with larger insurance policies, such as excess or umbrella liability coverage. It acts as a financial commitment from the insured to retain a certain amount of risk before the insurer will cover additional claims.

In this context, the self-insured retention is established at a level that the insured party is responsible for, which the insurance company does not cover until that retention level is reached. This structure encourages policyholders to manage their risks effectively, as they have increased exposure before the insurance kicks in. Thus, the understanding that a self-insured retention is akin to a deductible that aligns with the base policy limits is accurate, reinforcing the notion of risk management within higher coverage tiers.