What does "self-insured retention" refer to in the context of insurance?

Self-insured retention refers to the portion of a claim that the insured is responsible for paying before the insurance coverage kicks in. It represents a form of self-insurance where the insured retains a certain level of risk and is responsible for costs up to that specified amount. This can be thought of as a deductible that applies before the insurance company will begin to cover any remaining costs associated with the claim.

When a policy includes a self-insured retention clause, the insured must cover all costs up to that amount out-of-pocket. This arrangement might provide lower insurance premiums since the insured assumes some of the financial risk. Understanding this concept is essential for managing risks effectively and determining the appropriate level of insurance needed.