Retention means to keep.
Risk retention involves keeping one’s risk upon oneself. In the case of a loss, this person will be forced to pay for all the retained risk. One might prefer to do this because he or she is very wealthy or simply careless.
Those who choose risk retention as a method for handling risk may be proactive by saving up enough funds to cover any potential loss. They are said to be self-insured.
Deductibles and co-payments are also examples of risk retention:
- A deductible is the amount of money the insured must pay for a loss before the insurer will begin covering it.
- A co-payment is a percentage of the remaining loss, after the insurer has begun covering it, that the insured is still required to pay.