What happens if the base policy does not cover the loss incurred under SIR?

When a base policy does not cover a loss that is incurred under a Self-Insured Retention (SIR), the correct outcome is that the deductible specified in the SIR must be paid out of pocket before any coverage can apply. This means that the insured is responsible for covering the initial portion of the loss, which the SIR represents. Only after this amount is fulfilled can the umbrella policy or any excess liability coverage come into play.

Understanding this process is crucial, as SIR is essentially a form of deductible that requires the insured party to retain a certain amount of risk before the insurer starts to pay for damages. This mechanism allows insurers to mitigate their liability exposure and effectively manage claims. Therefore, knowing that the insured must meet that SIR obligation is vital for fiscal planning and understanding insurance terms.