What Is the Difference Between a Deductible & a Retention?

A person who needs health insurance usually has very different insurance needs than someone who is interested in automobile insurance for their car. As such, the type of insurer that an individual needs usually determines whether or not they are required to pay an insurance deductible or a retention fee.

Deductible

• An insurance deductible is most commonly associated with health insurance. A deductible is the dollar amount that a health insurance provider requires a subscriber to pay out of pock each year before it reimburses or covers the subscriber for any health insurance claims. While most health insurers require a deductible, including indemnity and PPO (preferred provider organization) plans, others like HMO (health maintenance organization) plans do not.

Retention

• A retention fee, or self-insured retention, is very similar to an insurance deductible, however it is most often related to liability insurance like car insurance and surety bonds for businesses. Like an insurance deductible, a self-insured retention is a fee that an insurer requires of an insurance subscriber before any claims are paid. A retention fee, however, does not act as personal insurance for the subscriber per se, but rather as insurance against the financial claims of others who may file suit against the subscriber, as in the case of a car accident.

Key Differences

• While insurance deductibles and retention fees are similar, there are a couple of key differences between the two. A self insured retention policy limit is added to the amount of the retention fee, whereas a deductible is subtracted from the policy limit. In addition, a policyholder with a retention pays the amount of the claim directly to the claimant from the retention balance, whereas an insurance company that charges a deductible has to pay the amount of a claim directly and then seek reimbursement from the claimant.

Price

• The amount of a deductible varies based on the type of insurance that an individual needs, and can range from $500 or less to many thousands of dollars. The higher your deductible the lower your monthly insurance cost. Retention fees for business liability insurance can cost many thousands of dollars, while car insurance may range from less than $100 a month to several hundred dollars depending on whether the coverage is no fault or full coverage.