Insurance glossary · How policies work
deductible vs self-insured retention.
Also called SIR.
With a deductible, the insurer handles the claim and bills you your share. With a self-insured retention, you pay your share first before the insurer steps in.
What’s the practical difference between a deductible and a self-insured retention?
Who pays first. With a deductible, the insurer handles and pays the claim, then bills you for your share. With a self-insured retention, you handle and pay the claim yourself until your share is used up, and only then does the insurer step in.
Does a deductible reduce my limit?
Often, yes: many liability deductibles are subtracted from the limit, so the insurer pays the limit minus your deductible. A self-insured retention usually sits beneath the limit, so the full limit is available above it. The policy wording decides which applies.
Who defends the claim under a self-insured retention?
Usually you do, until the retention is used up, either directly or through a claims administrator you hire, and defense costs often count toward the retention. Under a deductible, the insurer usually controls the defense from the start.
Why would a business choose a self-insured retention?
For lower premium and more control over claims. Larger businesses with steady cash flow and a claims process often prefer retentions. The trade-off is that the business carries the cost and the work of every claim below the retention.
Can an additional insured’s claim be stuck under my retention?
Yes. A claim against an additional insured may have to satisfy your retention before your insurer pays, and some policies say only you, not another insurer or the additional insured, can pay the retention. That wording matters to general contractors on your policy.
What happens to a self-insured retention if the business goes bankrupt?
It depends on the policy and the state. Some policies require the retention to be paid before coverage applies, which can leave a gap if the insured can’t pay. Some states limit how far an insurer can rely on an unpaid retention when the insured is insolvent.
Do umbrellas have retentions?
Yes. Where an umbrella covers a claim that no underlying policy covers, it usually applies its own self-insured retention before paying. For most claims, the underlying policies sit in that position instead.
Do deductibles and retentions work differently by state?
Mostly they follow the policy wording, but some states regulate retentions or how insurers treat them when the insured can’t pay, and courts differ on who may satisfy a retention. The notes below cover Riza’s licensed states.
in the states where Riza is licensed.
Riza is a licensed insurance agency in New York, Colorado, Texas, Florida, Massachusetts, Arizona, Nevada, North Carolina, New Jersey and Georgia. Notes below cite the law they come from. Detailed write-ups cover Arizona, Nevada, Texas, North Carolina and New York. One-line notes for other licensed states appear with them when this term has one.
- ArizonaArizona has no statute or rule specific to self-insured retentions, so disputes turn on the policy wording. An Arizona appeals court has held that once an insured showed claims would exceed its retentions, its insurers still owed a reasonable investigation.Lennar Corp. v. Transamerica Ins. Co. (Ariz. App. 2011)contractors in Arizona →
- NevadaNevada has no statute or rule specific to self-insured retentions. In a case involving a policy above a large retention, the Nevada Supreme Court held an insurer denying coverage for late notice has to show the delay harmed it.Las Vegas Metro. Police Dep’t v. Coregis Ins. Co. (Nev. 2011)contractors in Nevada →
- TexasTexas has no statute or rule specific to self-insured retentions, so the policy wording controls. Secondary sources report a federal court in Texas enforcing a retention written as a condition of coverage while accepting a non-cash way of satisfying it in the insured’s bankruptcy.IRMI, What Satisfies the Self-Insured Retention? [secondary]contractors in Texas →
- North CarolinaNorth Carolina has no statute or rule specific to self-insured retentions. A federal appeals court applying North Carolina law treated a retention as different from other insurance, so it isn’t counted as another policy sharing the loss.Wake County Hosp. Sys. v. National Cas. Co. (4th Cir. 1993)contractors in North Carolina →
- New YorkNew York requires every liability policy to say the insured’s bankruptcy doesn’t release the insurer, and a federal court has held an insurer still had to pay covered amounts above a retention the bankrupt insured never paid. New York also sets a minimum retention for commercial umbrella policies.N.Y. Ins. Law § 3420 · Admiral Ins. Co. v. Grace Indus. (E.D.N.Y. 2009) · NY DFS OGC Opinion 04-02-20contractors in New York →
by trade.
- General contractorsLarger contractors often move to retentions on general liability, and owners and subs on those policies should know how additional insured claims are handled below the retention.
- PlumbingWater damage deductibles on property and liability policies are common and worth comparing across quotes.
- RoofingRoofing liability policies sometimes carry higher deductibles or retentions than other trades.
where you’ll see it.
- Declarations or endorsements“Deductible liability insurance” or “Self-insured retention” endorsements with the amount and how it applies.
- ContractsRequirements that any deductible or retention over a set amount be disclosed or approved.
- Claim handlingBills from the insurer for a deductible, or a claims administrator handling claims under a retention.
pick the structure your cash flow can carry.
Riza compares deductible and retention options on the same coverage, shows what each saves in premium and costs per claim, and checks the retention wording against what your contracts require for additional insureds.
Get a quoterelated terms.
Coverage it touches: General liability · Umbrella and excess