Certified Professional in Health Care Risk Management (CPHRM) Practice Exam 2025 - Free CPHRM Practice Questions and Study Guide

Self-insured retention (SIR) refers specifically to the financial responsibility that the insured must cover out of pocket before the insurance coverage begins to take effect. This is an important concept in risk management, as it highlights the portion of the risk that the organization is willing to retain rather than transfer to an insurance company.

When an organization has a self-insured retention, it means that they will handle any claims or costs up to a specified amount. Only once that limit is surpassed does the insurance coverage begin to pay for the remaining costs. Understanding SIR is crucial for health care risk managers, as it influences both the organization’s cash flow and budgeting for potential losses. Organizations might choose to have a higher self-insured retention to lower their premium costs, assuming they are willing to accept more risk.

In contrast, the other options do not accurately define self-insured retention. They refer to different aspects of insurance and risk management, such as limits on payouts, claims evaluation, or insurance premiums. However, they do not capture the essence of self-insured retention like the concept of the insured's financial responsibility does.