What is a Self-Insured Retention (SIR)?

A Self-Insured Retention (SIR) refers to a predetermined amount of loss that an insured must cover out-of-pocket before the insurance policy begins to respond to the remaining claims. Essentially, it operates similarly to a deductible, but it is often used in liability insurance policies, particularly for larger clients or higher-risk industries. Once the specified amount of loss is exceeded, the insurer will cover additional costs up to the limits of the policy.

This concept allows organizations to take on some risk while providing an incentive for them to manage losses carefully. Therefore, understanding SIR is crucial for adjusting claims accurately, as it directly impacts the insurer's liability and the insured's exposure to loss.

The other options incorrectly imply different meanings—such as defining coverage limits or insurer payments—that do not align with the specific nature of a Self-Insured Retention.