What is a self-insured retention (SIR)?

A self-insured retention (SIR) refers to the amount of loss that the insured must bear on their own before insurance coverage becomes applicable. In other words, it is a specified amount that the insured pays out-of-pocket when a claim is made. This mechanism allows the insurer to share the risk, as the insured retains some level of responsibility for losses up to the SIR amount.

Using self-insured retention can be strategically beneficial for businesses or individuals who are confident in managing lower-level risks without actively involving their insurer for every incident. Unlike a deductible, which is typically applicable to numerous claims, a self-insured retention is often applied before primary insurance coverage starts for significant losses or under certain types of policies, often seen in liability coverage.

This concept encourages policyholders to be more conscientious about risk management because they are financially impacted by the retention amount. While other answers relate to aspects of insurance, they do not accurately capture the specific nature of self-insured retention, which is solely the responsibility taken on by the insured before the insurer takes over losses.