Self-Insured Retention (SIR) — a dollar amount specified in a liability insurance policy that must be paid by
the insured before the insurance policy will respond to a loss. Thus, under a
policy written with a SIR provision, the insured (rather than the insurer)
would pay defense and/or indemnity costs associated with a claim until the SIR
limit was reached. After that point, the insurer would mame any additional
payments for defense and indemnity that were covered by the policy.
In contrast, under a policy written with a deductible provision, the insurer
would pay the defense and indemnity costs associated with a claim on the
insured's behalf and then seek reimbursement of the deductible payment from
the insured. For example, assume that two policies are identical, except for
the fact that Policy A is written with a $25,000 deductible, while Policy B
contains a $25,000 SIR. Also assume that defense and indemnity payments for a
given claim total $100,000. In the event of a claim under Policy A, the insurer
would pay the $100,000 in defense and indemnity costs that were incurred. After
the claim is concluded, the insurer will bill the insured for the $25,000 in
payments made on the insured's behalf. In the event of a claim under Policy
B, the insured will pay the first $25,000 of defense/indemnity costs, after
which, the insurer will make the additional $75,000 in defense and indemnity
payments on the insured's behalf.