---
title: "Self-Insured Retention (SIR): Meaning and Example | Riskado"
description: "A self-insured retention is the part of a covered loss a business pays before its insurer responds. See a worked example and how it differs from a deductible."
url: "https://riskado.com/insurance-terms/self-insured-retention/"
lang: "en"
published: "2026-03-15"
modified: "2026-10-01"
image: "https://riskado.com/og/default.jpg"
alternates:
  es: "https://riskado.com/es/terminos-de-seguros/retencion-autoasegurada.md"
---

# Self-insured retention

[Business](https://riskado.com/business-insurance/) · Updated Oct 1, 2026

A self-insured retention, or SIR, is the part of a covered liability or property loss that the policyholder pays before the insurer responds. It shows up mainly on business liability, umbrella and excess policies. The policy decides whether defense costs count toward it and whether it applies per claim or in the aggregate.

Also called: sir

An SIR puts the first layer of a [claim](https://riskado.com/insurance-terms/claim/) on your business, not the [insurer](https://riskado.com/insurance-terms/insurer/). Until the retention is used up, you may be paying the damages, the defense lawyer and the claim expenses yourself, and the insurer may have no obligation to pay or defend. The amount on the [declarations page](https://riskado.com/insurance-terms/declarations-page/) matters, but so does how often it applies and what counts toward it.

## How a self-insured retention works on a claim

Connecticut's state casualty program carried a $4 million per-occurrence SIR, meaning the state self-insured the first $4 million of each fleet [liability](https://riskado.com/insurance-terms/liability-insurance/) claim and a third-party administrator handled claims within that amount, according to a [2013 Connecticut Appropriations Committee hearing (opens in a new tab)](https://www.cga.ct.gov/2013/appdata/chr/2013APP01114-R001330-CHR.htm). Applied to an illustrative $5 million covered claim, the split works like this, assuming the [policy](https://riskado.com/insurance-terms/policy/) covers the loss and its limit is at least $1 million:

A $5,000,000 covered claim with a $4,000,000 SIR

Hover or tap a row to highlight it.

| Step | Amount |
| --- | --- |
| Covered liability claim | $5,000,000 |
| SIR paid by the policyholder | $4,000,000 |
| Amount above the SIR ($5,000,000 minus $4,000,000) | $1,000,000 |
| Insurer pays | $1,000,000 |
| Total paid ($4,000,000 + $1,000,000) | $5,000,000 |

If the covered claim were $3 million instead, the [policyholder](https://riskado.com/insurance-terms/policyholder/) would ordinarily pay all of it, because the loss never got past the retention. The $4 million figure belongs to a state program; it is not a small-business average.

## SIR amounts and structures, and what each changes

Public policy and program examples run from $25,000 to $10 million. One public excess policy form used a $50,000 SIR per occurrence with an annual aggregate SIR, according to an [Eighth Circuit opinion record (opens in a new tab)](https://ecf.ca8.uscourts.gov/opndir/12/03/111967P.pdf). The structure matters as much as the amount:

- **Per occurrence or per claim.** The retention applies again to each event or each claim.
- **Annual aggregate.** You retain losses until a stated yearly total is used up, which can change how later claims are handled.
- **Combined SIR.** Damages, defense costs, investigation costs and claim expenses all count toward one retention.
- **Damages-only SIR.** The insurer may handle the defense while you pay the retention for damages.
- **Defense inside or outside the limit.** Defense expenses either reduce the available policy limit or sit outside it.

A higher SIR generally shifts more of the early loss and claim handling to you. The premium effect has to be quoted. An insurer may also ask for financial statements, collateral, a trust, a letter of credit or other proof that the business can fund the retention.

With a [deductible](https://riskado.com/insurance-terms/deductible/), the insurer generally handles the claim and provides a defense from the first dollar, then collects or subtracts the deductible. With an SIR, the insured is usually responsible for hiring its own defense counsel until the retention is exhausted, according to a [Wisconsin Court of Appeals decision (opens in a new tab)](https://www.wicourts.gov/ca/opinion/DisplayDocument.html?content=html&seqNo=118081). Excess insurance is different again: it responds above an underlying policy's limit, while an SIR is your own layer below the insurer.

## Where you will see SIR

SIRs appear mainly in business coverage: commercial [general liability](https://riskado.com/insurance-terms/general-liability-insurance/), commercial umbrella, excess liability, [professional liability](https://riskado.com/insurance-terms/professional-liability-insurance/), directors and officers, employment practices, product liability, environmental liability, and large property or casualty programs. Personal auto, homeowners, renters, life and individual health policies generally use deductibles, copayments or coinsurance instead.

Look for "SIR," "self-insured retention," "retained limit" or "retention" in the limits and retentions schedule of a quote, on the declarations page, in an SIR endorsement, and in conditions covering defense, exhaustion and payment evidence. It also turns up on a binder, renewal proposal, contract insurance schedule and [certificate of insurance](https://riskado.com/insurance-terms/certificate-of-insurance/), and in a claim letter explaining why the insurer has not yet paid or defended. Umbrella policies can carry one too, as the [guide to umbrella insurance](https://riskado.com/do-i-need-umbrella-insurance/) explains.

## Connecticut and New York rules on SIRs

For an ordinary commercial policy, the SIR is set by the policy, its endorsements and any contract requirements. Two state rules change that in specific settings. In Connecticut, a purchasing group may not buy insurance with a deductible or SIR that applies to the group as a whole, although the coverage may apply one to individual members, under [Conn. Gen. Stat. § 38a-260 (opens in a new tab)](https://www.cga.ct.gov/current/pub/chap_698c.htm#sec_38a-260).

In New York, the [DFS insurance requirements (opens in a new tab)](https://www.dfs.ny.gov/system/files/documents/2025/01/Appendix-F-The-Department-of-Financial-Services-Insurance-Requirements.pdf) require certificates to disclose a deductible or SIR when it materially changes the required coverage, and deductibles or SIRs above $100,000 may need Department approval in certain New York State contracting arrangements. The [DFS insurance verification form (opens in a new tab)](https://www.dfs.ny.gov/system/files/documents/2022/08/ny_ins_veri_form_20220419.pdf) asks whether a policy has a deductible or SIR and requires the amount.

## Questions to ask your agent or insurer

1.  What is the exact SIR amount, and does it apply per occurrence, per claim, per project or as an annual aggregate? The same dollar figure creates very different exposure depending on how often it applies.
2.  Do defense counsel fees, investigation expenses, expert fees and claim-adjustment costs count toward the SIR? Defense costs may fall entirely on you until the retention is exhausted, or the form may treat them differently.
3.  Does the insurer have a duty to defend before the SIR is exhausted? An SIR often leaves you choosing and paying defense counsel within the retained layer.
4.  What proof of payment does the insurer need before it treats the SIR as exhausted? Some wording requires actual payment of covered damages or defense expenses, not reserves or estimates.
5.  What happens if the underlying policy excludes the loss or its limits run out? An umbrella may apply an SIR when it drops down over an excluded exposure, while excess coverage may respond without a new SIR when the underlying limit is exhausted.

## Frequently asked questions

Short answers to common SIR questions.

### Does an SIR include legal defense costs?

It depends on the policy. Some SIR endorsements require the insured to bear damages or defense expenses until the retention is exhausted by actual payment, as in one [policy filed with the SEC (opens in a new tab)](https://www.sec.gov/Archives/edgar/data/1056904/000104746910010043/a2200619zex-10_72.htm). Other policies treat defense costs separately or place them outside the retention.

### Does an SIR reduce the policy limit?

Not automatically. Some policies provide the full stated limit above the SIR, while others let defense costs or retained amounts erode the limit, according to the [EPA's financial responsibility compendium (opens in a new tab)](https://nepis.epa.gov/Exe/ZyPURL.cgi?Dockey=P100VZ1E.TXT). The declarations and endorsements decide which applies.

### Do I have to tell a client or landlord about my SIR?

Often, yes. A contract may require first-dollar coverage or approval of retentions, and leaving an SIR off a certificate can put you out of compliance with that contract. Check the contract's insurance section before the certificate goes out.

## Related terms