What Is Basket Retention?

In the insurance industry, the term “basket retention” refers to an insurance policy that covers several types of risk at once. Oftentimes, these insurance policies are less expensive compared to purchasing individual insurance policies for each of the risks insured under the policy.

Key Takeaways

  • A basket retention insurance policy is one that insures against several types of risks simultaneously.
  • It is popular among self-insurers or those who desire a second layer of insurance protection.
  • Generally speaking, basket retention policies are less expensive than securing several separate lines of insurance.

How Basket Retention Works

Basket retention is a type of insurance policy that covers multiple types of risks through a single insurance product. Rather than purchasing separate insurance policies to cover individual risks, a policyholder might simplify their insurance arrangements by purchasing a single basket retention policy. In that scenario, the policyholder would pay a single set of insurance premiums and would generally benefit from a lower overall cost profile as compared to insuring each risk individually.

This type of combined insurance policy is particularly common among companies and individuals who self-insure—that is, companies and individuals who put aside their own money to cover losses rather than paying an insurance company. It is also sometimes used by policyholders who have already obtained coverage separately but wish to add an additional layer of insurance protection.

For these customers, it may be more economical to purchase a basket retention policy that covers a range of risks that they have already separately insured, rather than paying for a higher level of coverage within each of their existing insurance contracts.

Another context in which basket retention is used is when an insurance customer is unable to find standard insurance products that adequately protect their business operations. If the business model in question is particularly unique or complex, it may be necessary to specify multiple risks into one policy that usually would not be combined by most customers. In that situation, a basket retention policy may be the only option available.

Real-World Example of Basket Retention

Michaela is the owner of a clothing design and manufacturing company. When she first opened her business, Michaela’s business sold exclusively online and did not operate any retail storefronts. For this reason, she only purchased insurance policies to protect against commercial general liability as well as risks related to her manufacturing process.

In recent years, Michaela expanded her business to include a network of retail stores. Moreover, she also decided to pursue vertical integration by purchasing her own fleet of delivery vehicles. Because of these new business operations, Michaela’s company was now exposed not only to manufacturing-related risks, but also to other risks related to driving and to her physical storefronts. She thus decided to purchase additional insurance.

In doing so, Michaela discovered that the cost of purchasing separate insurance policies to cover these new risks would be more expensive than simply taking out a single basket retention policy to cover all of them together. Alternatively, she could also keep her existing insurance and purchase a basket retention policy to provide an additional layer of protection.