Self insured retention (SIR) is a word that may sometimes pop up in insurance documents, or when buying insurance, but what does it mean? In the most basic definition self insured retention is the act of insuring yourself, or your possessions, by regularly setting aside money, or funds.
In the car insurance business self insured retention is handled by establishing a separate fund where you deposit money into with your monthly, or yearly insurance payment. Typically the SIR amount is the amount that must be paid by the insured before the insurance policy will respond to a loss. In other words your SIR pays for anything that your umbrella policy does not cover. So if you have an excess of damages that is not covered by your insurance policy you will deduct your SIR prior to paying anything out of pocket.
For example, if you suffer $40,000 in medical expenses after an accident but your insurance only covers $30,000 you are responsible for the remaining $10,000. If you have an SIR policy you can deduct whatever you have paid in to cover the remaining $10,000, whatever is left over at the end you are responsible for.
In addition when there is a claim cannot be made for one reason or another you can still use your SIR to cover an accident. Thus if your policy doesn’t cover window damage you could deduct the cost of a new windshield from the amount in your SIR to avoid any out of pocket expenses.