Self Insured Retention vs Deductible: What’s the Difference?


One area for businesses to manage risk is in the realm of insurance. Terms like “self insured retention” and “deductible” are often used. Understanding the differences is crucial for businesses as financially protecting themselves is the reason business insurance exists. One concept often misunderstood is self insured retention and how that is different from a deductible. In this post, we’ll take a look at self insured retention, how it differs from a deductible and why it matters in the insurance landscape.

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What Is a Self Insured Retention (SIR)?

The amount of risk that a policyholder agrees to retain before insurance coverage kicks in, often referred to as SIR (self insured retention), means the organization is responsible for any losses up until a certain threshold, at which point the insurance company starts to pay. In essence, SIR operates the same way as a deductible, though there are some important differences.

Why would a business choose an SIR?

There are a few reasons a company may opt for an SIR:

  • Lower premiums: The higher your SIR, the less risk for the insurer and the lower your premiums will be. This can save you a lot of money, especially if you have a low claims history.
  • Cash flow benefits: With an SIR, you pay claims as they come in rather than paying higher premiums upfront. This can help with budgeting and cash flow.
  • Control over claims: You have more control over how claims are handled since you’re paying them directly. You can negotiate with providers and settle claims in a way that benefits you most.
  • Tax advantages: The money you pay for claims can be deducted as a business expense to lower your taxable income. Insurance premiums are not tax deductible.

The downside is that you do take on more financial risk with an SIR. If there are a lot of claims or a catastrophic claim, you could end up paying a lot more out of pocket than you would with a lower deductible and higher premiums. An SIR may not make sense for high-risk businesses or those with limited cash reserves. But for many companies, an SIR offers an affordable way to balance risk and savings.

How Self Insured Retention Differs From a Deductible

A self insured retention (SIR) and a deductible are both amounts you pay out of pocket before your insurance coverage kicks in, but there are a few key differences to understand.

You Pay the SIR, Insurer Pays the Deductible

With an SIR, however, you are responsible for paying a full amount of claims up to that limit. You insurance company is not responsible for paying anything until claims exceed that limit. With a $10,000 SIR and a $25,000 claim, for instance, you would pay $10,000, and your insurer would pay $15,000. With a $10,000 deductible, you would pay $10,000 and your insurer would pick up the full $25,000 claim.

SIR Applies Per Occurrence, Deductible is Per Policy Term

An SIR applies to each individual claim occurrence. If you have two $5,000 claims in one policy term, for example, your per occurrence SIR makes you responsible for the full amount of damages from both claims. With a deductible, only one payment is required. If your deductible is $5,000 and you have two claims of $5,000 each, you pay only $5,000 total and your insurance covers the remaining $10,000.

Pros and Cons of Self-Insured Retention

Advantages of Self-Insured Retention

  • Cost Savings: Businesses can save money on insurance premiums by paying for a portion of the risk themselves.
  • Customizable: SIR insurance allows organizations to set up a program with coverage that best suits their specific needs.
  • Control over the Claims Process: With this type of insurance, you have a bigger role in the managing, handling and resolution of claims for your organizations.

Disadvantages of Self-Insured Retention

  • Financial Risk: By taking on the self insured retention insurance option, you are accepting a monetary risk that you may have been able to transfer otherwise.
  • Administrative Headache: Managing this type of coverage can be time-consuming, and may take away from other critical tasks.
  • Potential for Coverage Gaps: Any SIR program also carries potential for risk and coverage gaps, which companies should be sure they fully understand.

Case Studies and Real-World Examples of Self-Insured Retention

Success Stories of Companies Implementing Self-Insured Retention

  • Insights on Cost Savings and Risk Management: Companies that successfully implement self-insured retention (SIR) realize significant cost savings and improved risk management!
  • Lessons Learned from Implementing Self-Insured Retention: Organizations can learn valuable lessons from others’ experiences with self-insured retention.
  • Impact on Company Culture and Employee Engagement: SIR can have a positive impact on company culture by promoting risk awareness and proactive risk management practices.


Can self insured retention and deductibles be used together?

Yes, businesses can have both self insured retention and  deductibles in their insurance policy. This allows for a more customized risk management approach and cost-sharing.

Are self insured retention and deductibles tax-deductible?

In some cases, self insured retention and deductibles may be tax-deductible expenses for businesses. However, it’s important to consult with a tax professional or accountant to understand the specifics.

Do self insured retention and deductibles impact claim settlements?

Yes, both self insured retention and  deductibles can impact claim settlements. With self insured retention, the business bears the initial risk up to the SIR, so it can result in lower claim costs. Deductibles incentivize policyholders to be more cautious, ultimately resulting in fewer and smaller claims.


Understanding self insured retention is a crucial part of navigating the complex insurance landscape for businesses. By knowing the difference between SIR and deductibles, organizations can make an informed decision regarding their risk management goals. It is essential to remember that with SIR, come unique advantages, such as cost savings and customized coverage, but careful consideration and a strategic plan are necessary. Stay informed, stay protected!

Reach out to our team for more information on self insured retention and how it can benefit your business. Take control of your risk management strategy now!

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