A Retained Limit, also known as a Retention Limit or Self-Insured Retention (SIR), is a specific amount of money that an insured party must pay out-of-pocket before their insurance policy begins to pay for a covered loss. It is a form of risk retention that functions similarly to a deductible but with some key differences.
In an insurance policy, the retained limit is the portion of the risk the policyholder agrees to absorb. If a claim is made, the policyholder is responsible for paying the costs up to the amount of the retained limit. Only after this amount has been paid will the insurance company begin to cover the remaining costs.
For example, if a policy has a retained limit of $10,000 and a claim is made for $50,000, the policyholder would pay the first $10,000. The insurance company would then cover the remaining $40,000.
The key difference between a retained limit and a deductible is that with a retained limit, the policyholder is responsible for managing and paying for the claim up to the retained limit. This includes any legal or claim handling costs. With a deductible, the insurance company typically handles the claim and then charges the policyholder for the deductible amount.
The purpose of a retained limit is to reduce the cost of insurance premiums for the policyholder. By agreeing to absorb a portion of the risk themselves, the policyholder can often negotiate lower premium payments. However, this also means that the policyholder must have the financial resources available to cover the retained limit in case of a claim.