What is a self-insured retention (SIR)?


A self-insured retention, also widely known under its abbreviation SIR, refers to the amount that an insured has to pay in order for an insurance policy to kick in. In its function it is similar to an insurance deductible although each of the two concepts has its own distinguishing features.

A SIR or a Deductible - What is the Difference

Although both terms refer to the dollar amount which an insured must pay, as specified in the policy declarations, in order to receive coverage for a liability claim, a deductible and a self-insured retention have certain considerable differences which prospective insurance buyers must be well familiar with. Here are the most significant differences between the two:

  • Whereas an insurance deductible is included in the policy limits, a self-insured retention is independent from and has little to do with the dollar amount limits of the policy.
  • The self-insured retention amount listed in the policy declarations is not payable by the insurance provider on behalf of the insured. The insured has the responsibility to pay it directly to the plaintiff, instead.

Self-Insured Retention and the Commercial Umbrella

SIRs are commonly found in commercial umbrella insurance policies which business owners purchase to protect themselves against catastrophic financial losses arising out of serious liability claims.

A self-insured retention is an alternative to an underlying liability policy. That means that the insured who wishes to purchase a commercial umbrella needs to have either an underlying liability policy, such as a commercial general liability, a business auto liability or an employers' liability policy, or carry a SIR of a certain amount.

The commercial umbrella insurance only comes into force once the policy limits of the underlying insurance have been exhausted and the self-insured retention amount has been paid. In case a business owner does not carry an underlying policy, they need to provide a SIR of a certain amount from $500 to $1 million.

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