Retention on an insurance policy is an important concept that many people overlook. It’s not something most people discuss, but it can make a huge difference in the amount of money you pay for coverage.
Retention is a form of risk management, where an insurer agrees to pay for only a portion of a claim and the insured agrees to cover the remaining costs. Generally speaking, retention reduces the insurer’s liability and helps to keep premiums lower. In this post, we will explore what is retention on an insurance policy and how it affects your coverage.
What is insurance retention?
Retention on an insurance policy is the percentage of premium that the insurer keeps as profit. The rest of the premium is used to pay claims and expenses.
Some insurers have a high retention, which means they keep a larger portion of the premium as profit. Others have a low retention, which means they use a smaller portion of the premium for profit.
The amount of retention can vary based on the type of insurance policy, the company, and other factors.
How is insurance retention different from other types of insurance?
There are a few key ways that insurance retention is different from other types of insurance. For one, insurance retention is typically used for riskier policies or for policies with a higher potential for loss. This means that the insurer is willing to accept a higher level of risk in exchange for a higher premium. Additionally, insurance retention may be used when an insurer does not have the capacity to cover all of the potential risks associated with a policy.
In this case, the insurer will retain a portion of the risk and pass on the rest to the policyholder. Finally, insurance retention can also be used as a way to limit an insurer’s liability in the event of a claim. By agreeing to retain a portion of the risk, the insurer can protect itself from having to pay out large sums of money in the event of a claim.
What are the benefits of insurance retention?
There are several benefits that come along with insurance retention. Perhaps the most obvious benefit is that it helps to keep your costs down. When you keep your policy, you are less likely to experience an increase in rates. In addition, insurance companies often offer discounts for customers who retain their coverage.
Another benefit of insurance retention is that it gives you a chance to build up a relationship with your insurer. If you have been with the same company for a while, they may be more likely to work with you if you experience a claim. They will also be more familiar with your individual needs and risks, which can help them to provide better coverage.
Finally, retaining your insurance coverage can provide peace of mind in knowing that you and your family are protected in the event of an accident or other unforeseen circumstance. No one knows when something bad might happen, so it’s always good to have a safety net in place. Insurance can provide that security and peace of mind, knowing that you are covered no matter what happens.
What are the drawbacks of insurance retention?
There are a few drawbacks of insurance retention that policyholders should be aware of. First, when you retain an insurance policy, you are responsible for paying the entire premium up front. This can be a financial burden for some policyholders. Additionally, retaining an insurance policy means that you will no longer have the coverage of your previous insurer.
This could leave you vulnerable to financial losses if you experience a covered event. Finally, insurance companies may charge higher rates for retained policies, so you could end up paying more for your coverage in the long run.
How can I make sure my insurer offers me the best possible rates?
There are a few things you can do to make sure your insurer offers you the best possible rates. First, shop around and compare rates from different insurers. Second, ask your agent or broker about discounts that may be available to you. Finally, make sure you are comfortable with the level of coverage you have and that it meets your needs.
Conclusion
In conclusion, retention on an insurance policy is a concept that can be confusing at first but ultimately serves as a powerful tool to reduce the financial risk of a policyholder. By understanding how retention works, you can determine if it is suitable for your particular situation and use it to protect yourself from potential losses. Insurance policies with higher retentions often result in lower premiums, so make sure to weigh all the pros and cons before making any decisions.