Retention (Self-Insured Retention)
A retention, or self-insured retention (SIR), is the amount of loss the insured pays before the insurer's obligation begins. Unlike a typical deductible, an SIR is usually paid directly by the insured and generally does not reduce the policy limit.
Last updated October 13, 2026
How a retention works
In a liability policy with an SIR, the insured pays defense and indemnity costs itself until the retention is reached. Only then does the insurer pay covered amounts above it. With a deductible, the insurer generally pays the loss first and then bills the insured for the deductible amount.
- Insurer involvement: an insurer above an SIR generally has no obligation, including any duty to defend, until the SIR is exhausted.
- Limits: an SIR usually does not erode the aggregate limit, while a deductible often does. A $10 million limit with a $1 million deductible can leave $9 million of insurer-funded coverage.
- Collateral and certificates: large deductibles may require collateral, and an SIR generally must be disclosed on certificates of insurance.
- Terminology: many policies, particularly professional lines, use "retention" loosely, so the mechanics are in the wording, not the label.
Some programs use a retention that is different for different types of claims, and a few use a corridor design, so it is worth asking for a plain example of how a mid-sized claim would be paid before you bind.
Example
A hypothetical company has a $5 million liability policy with a $250,000 SIR. A claim produces $1 million in covered defense and damages. The company pays the first $250,000 itself, and the insurer pays the remaining covered amount up to the limit, subject to the policy terms.
What to watch for
- Who can pay. Some SIR wording says only the named insured's own payments count, and courts have enforced clear language of that kind. Payments by others may not erode it.
- Defense costs. Confirm whether they count toward the retention. Large deductibles usually let them erode the deductible, but it is negotiated.
- Notice. Check whether claims must be reported even if they may stay below the retention.
- Cash. A higher retention can reduce premium, but the company must be able to fund it when a claim arrives.
Retention vs. related terms
- Deductible. A deductible is usually subtracted from a loss the insurer pays, while an SIR is an amount the insured pays before the insurer is involved. In everyday talk the two words are mixed up, so rely on the policy wording.
- Waiting period. Some first-party coverages, such as network business interruption, use a time-based waiting period instead of a dollar amount. The two can appear in the same policy, so check which one applies to which cost.
- Coinsurance and sublimit. After a retention is met, some policies make the insured share a percentage of covered loss, a form of coinsurance that appears, for example, in some cyber extortion terms. A sublimit caps what the insurer pays for a specific kind of loss. Neither is a retention, but each changes what the insured ends up paying.
- Limit of liability. The limit of liability is the most the insurer will pay. A retention sits below it, and whether the retention erodes the limit depends on the wording.
Second example: a claim under the retention
A hypothetical company receives a demand letter from a customer. Its claims-made policy has a $150,000 retention, and the company expects the matter to cost less than that, so it hires its own lawyer and does not tell the insurer. Months later the customer files suit and the costs rise. By then the policy has expired and was not renewed. The insurer may argue that the claim was not reported during the policy period or within the required notice window, and coverage could be disputed. The lesson is that a claim being smaller than the retention does not remove the duty to give notice, and reporting early protects the right to coverage if the claim grows. The terms of the notice condition govern.
Questions to ask your broker or underwriter
- Is the retention per claim, per policy period or per coverage part, and does one retention apply to related claims?
- Do defense costs count toward satisfying it, and whose payments are recognized?
- Do different claim types, such as securities, employment or cyber extortion, carry different retentions?
- For D&O, is there no retention for individuals under Side A when the company cannot indemnify them?
- Who controls defense counsel and settlement while the retention is being eroded, and when does the insurer's duty to defend begin?
- Can a parent company, a captive or another party fund the retention and still have it count?
- Do customer contracts or the certificate of insurance have to disclose the retention?
Why it matters for technology, AI, fintech and digital-asset companies
Retentions on errors and omissions, cyber, and directors and officers policies can be large relative to a startup's cash, and defense costs may count toward them. Balance premium savings against the cash needed to respond to a claim, and check how defense costs are treated.
A startup's cash is usually committed to growth, so a large retention that looks efficient on a quote can be hard to fund during a dispute. Ask for pricing at several retention levels, and revisit the choice at each financing as the company's cash position and exposure change. Technology and cyber claims, such as a data incident or a service failure, can build costs quickly in forensics, counsel and notification, so the retention can be reached sooner than expected. A fintech or digital-asset company facing regulatory inquiries should also check how those matters are treated. See cyber and technology E&O and startup insurance by stage for context. A broker can also explain how an umbrella or excess layer interacts with retentions below it.
Related terms
Frequently asked questions
What is a self-insured retention?
A retention, or self-insured retention (SIR), is the amount of loss the insured pays before the insurer's obligation begins. Unlike a typical deductible, an SIR is usually paid directly by the insured and generally does not reduce the policy limit.
What is the difference between a retention and a deductible?
With an SIR the insured pays covered costs directly until the retention is met, and the insurer's obligation starts above it. With a deductible the insurer generally pays first and recovers the deductible from the insured. SIRs typically do not erode limits, while deductibles often do.
Does a retention erode the policy limit?
Usually not under a true SIR, since the insurer's limit sits above the retention. A deductible often reduces the amount the insurer pays within the limit. Policy language controls, so confirm how the specific form treats the retention and the limit.
Do defense costs count toward the retention?
Often yes under an SIR, because the insured pays defense costs until the retention is reached. Some policies restrict which payments count or who may make them. Read the retention wording and ask your broker to confirm before a claim occurs.
How do I choose a retention?
Balance premium savings against the cash you could fund when a claim arrives, and consider how often claims in your line tend to occur. Ask your broker for quotes at several retention levels, and compare them with your runway and any contract requirements.
Does a higher retention lower my premium?
Typically, because the insured keeps more of the risk. The size of the saving varies by insurer, line and your risk profile, so request several options. A smaller premium is not a bargain if the retention would strain your cash after a claim.
Is a retention per claim or per policy period?
It depends on the wording. Many liability policies apply a retention to each claim, and some apply it across related claims or by coverage part. Confirm how the policy counts claims and whether related matters share one retention.
What happens if a claim is smaller than the retention?
The insurer typically pays nothing on that claim, since the loss stays within the amount you fund. You may still need to report it, especially on a claims-made policy, so that coverage is preserved if the claim grows.
Need this coverage, or just a clear answer?
Our brokers translate terms like Retention (Self-Insured Retention) into a program built for how your company actually operates, and read every policy for the exclusions that matter.
Book a consultation → (opens in a new tab)