Insurance Terms Defined: Retention

Retention: a risk management technique by which losses are retained by generating funds within the organization to pay for losses.

As you may know, insurance is basically the transferring of risk from an individual or business to the insurance company in exchange for a monthly premium.  There are several ways for the individual or company to reduce the premium amount and one way is by the practice of retention.

Retention is when the business or individual decides to assume a certain amount of the risk to reduce the amount they are to have covered.  For instance, say you decide to go with auto insurance liability limits of $50,000 for property damage instead of the most popular $100,000.  You are assuming a lower amount of coverage in exchange for a lower premium.