Florida Insurance Licensing Practice Exam

A "self-insured retention" refers to the amount that a policyholder must pay for a claim before the insurance coverage kicks in. This is particularly common in certain types of insurance policies, such as liability insurance, where the policyholder retains a portion of the risk. By opting for a self-insured retention, the insured is effectively agreeing to cover a portion of any loss or claim expenses up to a specified limit.

This approach allows the insured to potentially lower their insurance premiums, as they are taking on more risk. The self-insured retention amount is usually specified in the policy and acts as a threshold that must be met before coverage from the insurer is activated.

Understanding this concept is crucial for insurance professionals, as it impacts both the risk management strategies adopted by businesses and the premiums they pay for coverage. In contrast, the other options describe different insurance terms that do not accurately reflect the definition or function of self-insured retention.