What is the difference between deductible and retention

Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Get a quote. Any time Morning Afternoon. Even experienced insurance professionals and insureds are often found scratching their heads when considering which of the two concepts are a best fit or when faced with applying SIRs or deductibles to actual coverage situations. A deductible or SIR dictates the monetary threshold at which an insurer is obligated to pay liabilities covered by the policy.

The use of these tools enable an insurer to shift the burden to pay for a portion of the claim to the insured. Factors determining the favorability and amount of an SIR or deductible to an insured are many. As one might presume, the higher the amount of either an SIR or deductible, the upfront premium cost for a policy will be reduced. However, when selecting between the two options, there are other factors to be considered, including but not limited to the ultimate cost to the insured when taking into account claims handling, defense, etc.

Although terms of specific policies differ and are subject to negotiation between insured and insurers, listed below are some notable pros and cons to be considered when determining the suitability of an SIR or a deductible. Unless restricted by law, most insureds opt for SIRs over deductibles. What is the difference between a deductible and a self-insured retention? Stay tuned for more answers to all your insurance questions! If you don't have a horse in the race, you're more likely to have a cavalier attitude toward the outcome.

Deductibles and retentions also make insurance less expensive for everyone. Increasing the amount of your retention makes your insurance premium go down. The more money you pay, the less your insurance will have to. This break is passed on to you in the form of lower premiums. The overall price of insurance goes down under this system, as well.

If the amount of your claim is less than your retention amount, it makes sense to pay for the loss yourself rather than running it through your insurance.

As a result, fewer nuisance claims get filed and processed. Processing a claim takes time and money, even when the insurance company ultimately denies the claim. Reducing the amount of frivolous paperwork and expense helps keep insurance costs down for everyone.