When is a self-insured retention applied in an umbrella policy?

A self-insured retention (SIR) in an umbrella policy functions similarly to a deductible but is specific to the situation where the umbrella policy covers certain losses that are excluded from the primary insurance. This means that if a claim falls within the exclusions of the primary policy but is covered under the umbrella policy, the self-insured retention amount must be satisfied before the umbrella coverage kicks in.

In the context of the other options, the self-insured retention is not applied before any claim is filed, as it comes into play once a claim occurs. Similarly, the SIR does not apply when the primary policy covers the loss, because in such cases, the primary insurer would handle the claim without needing the umbrella policy to intervene. The last option incorrectly suggests that the self-insured retention is triggered when the limits of the primary policy are reached; rather, it is specifically related to losses that are not covered by the primary policy at all. Thus, the correct application of a self-insured retention occurs when the umbrella policy is needed for losses that the primary policy excludes.