Self-insured retention (SIR) is a common term in the insurance industry. It refers to the amount of money that an insured party must pay out of pocket before their insurance policy begins to cover the remaining costs. In this article, we’ll discuss what self-insured retention is, how it works, and why it’s important.
What is Self Insured Retention?
Self-insured retention is a type of insurance policy that requires the insured party to pay a certain amount of money out of pocket before the insurance policy begins to cover the remaining costs. The amount of money that the insured party must pay is called the self-insured retention amount. This amount is typically higher than the deductible amount in a traditional insurance policy.
How Does Self Insured Retention Work?
Self-insured retention works by shifting some of the financial risk from the insurance company to the insured party. The insured party agrees to pay a certain amount of money out of pocket before the insurance policy begins to cover the remaining costs. This means that the insured party is responsible for a portion of the financial risk associated with the policy.
For example, let’s say that a business has a self-insured retention policy for $50,000. If the business experiences a loss of $100,000, they would be responsible for paying the first $50,000 out of pocket. The insurance policy would then cover the remaining $50,000.
Why is Self Insured Retention Important?
Self-insured retention is important because it allows businesses to have more control over their insurance policies. By agreeing to pay a certain amount out of pocket, businesses can reduce their insurance premiums. This can be especially beneficial for businesses that have a low risk of experiencing losses.
Self-insured retention can also help businesses to manage their cash flow. By paying a portion of the financial risk associated with the policy, businesses can avoid large insurance premiums and have more control over their finances.
Conclusion
Self-insured retention is a type of insurance policy that requires the insured party to pay a certain amount of money out of pocket before the insurance policy begins to cover the remaining costs. It works by shifting some of the financial risk from the insurance company to the insured party. Self-insured retention is important because it allows businesses to have more control over their insurance policies and manage their cash flow. If you’re considering a self-insured retention policy, be sure to speak with an insurance professional to determine if it’s the right choice for your business.
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