Ace the Alberta General Insurance Level 1 Exam 2025 – Insure Your Success Today!

Self-insured retention (SIR) is the amount that a policyholder must pay out-of-pocket for covered losses before the insurance coverage begins to pay. Essentially, it represents a portion of risk that the policyholder retains, and thus, the insurer does not assume responsibility for that initial amount. This concept is often used in liability insurance policies where the policyholder agrees to cover a specific amount of loss (the self-insured retention) before the insurer starts to cover any subsequent losses within the policy limits.

The significance of self-insured retention is that it can lower premiums because the insurance company assumes less risk. It also encourages policyholders to be more judicious about the claims they make, as they will bear the initial costs of any loss up to the SIR amount.

Understanding this concept is crucial for anyone studying insurance because it highlights the balance of risk between the insurer and the insured, and it affects how policy deductibles and coverage limits are structured.