Why it matters for your company
The difference shows up when a claim arrives. Under a deductible, the insurer defends from the first dollar and recovers your share later. Under a retention, you fund the early defense costs, and the insurer's duty starts only once the retention is exhausted.
Management liability, tech E&O and cyber are usually written with retentions. Higher retentions lower the premium, and for a company with little cash the right retention is the largest amount you could pay in a bad quarter without missing payroll.
Related terms
- Aggregate limitThe most a policy will pay for all covered claims in one policy period, however many there are. Once it is used up, the policy pays nothing more until it renews.
- SublimitA smaller cap inside a policy's main limit that applies to one kind of loss. A $3M cyber policy with a $250,000 sublimit for social engineering pays no more than $250,000 for that claim.
- Claims-made and occurrence policiesAn occurrence policy responds to incidents that happen during the policy period, whenever the claim is filed. A claims-made policy responds to claims first made during the policy period, subject to its retroactive date.