Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

What does the Self-Insured Retention serve as in an Umbrella Liability Policy?

1. A limit to legal fees

2. A deductible for certain losses

3. An additional coverage boost

4. A secondary maximum payout

The correct answer is: A deductible for certain losses

The Self-Insured Retention (SIR) in an Umbrella Liability Policy functions as a deductible for certain losses. Essentially, it represents the amount the policyholder must pay out-of-pocket before the umbrella policy kicks in to cover any additional claims. This financial threshold is designed to ensure that the policyholder retains some risk, thereby aligning their interests with those of the insurer. In practical terms, if a claim occurs that falls under the SIR amount, the insurer will not cover that claim until the policyholder has satisfied the SIR requirement. Once this retention amount is met, the umbrella policy then provides broader coverage above the underlying limits and can cover the remaining costs associated with the claim. Understanding this aspect is crucial for brokers and clients alike, as it impacts coverage strategy and risk management.