What is the difference between a deductible and self-insured retention?
Asked by: Prof. Timothy Jerde I | Last update: November 23, 2025Score: 4.8/5 (26 votes)
What is a self-insured retention?
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.
Is an sir the same as a deductible?
Self-insured retention requires that you, as the insured, make payments up to the SIR limit first, before your insurer makes any payments towards the claim. In contrast, a deductible policy often requires the insurer to cover your losses immediately, and then collect reimbursement from you afterward.
Is retention another word for deductible?
Many even within the insurance industry consider a “Retention”, “Deductible” and “Excess” interchangeable.
Does self-insured retention erode the limit?
Under an SIR provision, the amount is not eroded, and the insured must pay all defense and/or indemnity expenses associated with defense until the loss exceeds the SIR. Limits erosion—The annual aggregate limit under an SIR provision is usually not affected by the SIR amount.
What is the difference between a deductible and a self-insured retention?
Is self-insured retention the same as deductible?
The answer to the question what's the difference between a deductible and a self insured retention is that deductibles reduce the amount of insurance available whereas a self insured retention is applied and the limit of insurance is fully available above that amount.
What is the deductible in an insurance policy?
Simply put, a deductible is the amount of money that the insured person must pay before their insurance policy starts paying for covered expenses.
Is a retained limit a deductible?
In practice, a retained limit acts similarly to a deductible, with the key difference being that it applies specifically to high-value claims or specialized types of insurance.
How do you deduct retention?
When retention is subtracted from the invoice, the amount held is recorded as retention receivable. Once the project is complete and you're billing your customer for the retention that was held throughout the project, the amount then moves from retention receivable to accounts receivable.
What are the different types of retention in insurance?
The truth is that there are at least three different types of retention in insurance—customer retention, revenue retention, and policy retention—and although there is some overlap among the three, success in one doesn't guarantee success in all the others.
What are the two types of deductibles?
There are two types of health insurance deductibles: individual and family deductibles. A health insurance plan can have either one of these or a combination of the two. The individual deductible is straightforward, but the family deductible is more complex.
What is a self-insured retention under an umbrella policy?
In other words, a self-insured retention is an amount that your business must pay before its umbrella policy will begin paying for a covered claim that has a retention. As an example, assume your business has the same $400,000 claim. This time, however, the claim isn't covered by a primary policy.
What are the disadvantages of a deductible?
- Delayed Care. If you have a high health insurance deductible, you may hesitate to seek medical care until you've met your deductible. ...
- Limited Provider Network. ...
- Higher Out-of-Pocket Costs. ...
- Complexity of Healthcare Costs.
How does Sir work in insurance?
Self-insured retention (SIR) is a self-insurance mechanism used by some organizations to manage their insurance costs. Under a liability insurance policy with a SIR provision, the business must cover a set dollar amount before the insurance company begins to pay out claims.
What is the difference between attachment point and deductible?
The monthly deductible is the sum of the monthly factors times their respective employee counts. The aggregate deductible is also referred to as the aggregate attachment point. The financials used to determine your aggregate stop loss funding level – typically the amount of expected claims plus 25%.
What does the term self-insured mean?
Self-insurance involves setting aside your own money to pay for a possible loss instead of purchasing insurance and expecting an insurance company to reimburse you.
Is retention the same as deductible?
The words retention and deductible are often used interchangeably. Both terms refer to the sum of money that the insured is responsible for in the event of a covered claim.
What is the purpose of retention?
The purpose of retention is to ensure that the contractor properly completes the activities required of them under the contract. Retention can also be applied to nominated sub-contractors, and the main contractor may also apply retention to domestic sub-contractors. In the US, this is known as Retainage.
When can you claim retention?
Retention payments can only be claimed as part of the final payment claim and must be stated on the final payment statement of expenditure as part of 'Step 1 – Final Payment Request' including the date the retention will be paid out to the contractor. Any retention claims should be forecasted as normal.
What is the difference between a deductible and a self-insured retention?
A self-insured retention is not the same as a deductible. While some courts have used the terms interchangeably, a “deductible” is usually satisfied within a policy limit, whereas a “retention” is typically outside the policy limit.
What is excluded from deductible?
Note that some services—like preventive care, and on some plans, generic drugs—aren't subject to the deductible or to a copay, which means you don't have to pay anything for that care.
What is the difference between a limit and a deductible?
Deductibles and limits are two key components of an Allstate Business Owners Policy (BOP) that are important to understand. A deductible is the amount of money a business owner pays out of pocket toward a covered claim, while a limit is the maximum amount of money an insurance company will pay toward a covered claim.
Is it better to have a $500 deductible or $1000?
Remember that filing small claims may affect how much you have to pay for insurance later. Switching from a $500 deductible to a $1,000 deductible can save as much as 20 percent on the cost of your insurance premium payments.
Do you have to pay your deductible if you're not at fault?
It depends on your insurance policy. Some insurance policies require you to pay your deductible even if you are not at fault, while others do not. Reviewing your policy or speaking with your insurance agent to understand your coverage is important.
How does your deductible work with insurance?
The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself. A fixed amount ($20, for example) you pay for a covered health care service after you've paid your deductible.