In the context of insurance, what does self-insured retention (SIR) mean?

Self-insured retention (SIR) refers to the portion of risk that the policyholder retains before the insurance coverage kicks in. This means that when a claim occurs, the policyholder is required to cover a specified amount out of their own resources before the insurer will begin to pay for any additional losses or claims.

This concept is often used in insurance policies, particularly in liability coverage, where the policyholder accepts some level of financial responsibility for minor claims and allows the insurer to handle larger claims beyond that self-retained amount. Understanding SIR is crucial for businesses seeking to manage their risk effectively while balancing their insurance costs.

Other options do not accurately define SIR. The amount an insurer retains in claims generally refers to the insurer's financial exposure, while the total value of a policyholder's assets is unrelated to how much risk they retain. The amount an insurer expects to pay for legal fees pertains to their anticipated expenses in defending claims, which is also not aligned with the concept of self-insured retention.