Active Retention

What Does Active Retention Mean?

Active retention is the practice of setting aside financial resources with the intention of using them to cover future losses. It serves as a form of self-insurance, acting as an alternative to paying premiums to an insurance company for coverage.

Insuranceopedia Explains Active Retention

Insurance is the most common choice for risk coverage, allowing individuals or entities to protect themselves from future losses by purchasing an insurance policy. However, some may choose to rely on their own funds instead of obtaining independent insurance coverage. Whether self-funding actually makes financial sense depends on the size of the potential loss compared with what coverage would cost, which is why people often look at the average cost of life insurance before deciding to retain the risk themselves.

For example, a company that periodically saves money to provide pensions for its employees in the future is practicing active retention. A business doing this kind of math often compares it against typical small business insurance costs to see whether putting money aside is actually cheaper than paying premiums. Similarly, an individual who sets aside a portion of their income for potential hospitalization or healthcare expenses is also engaging in active retention.