DeductibleTools

Deductible Break-Even Analysis

Work out the total annual cost of a deductible choice, including the expected claim share and the cash reserve it requires.

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Free · No sign-up · Runs in your browser

A deductible is not free money saved. It is a cost you have agreed to carry, and the honest annual cost of a policy is the premium plus the share of claims that choice hands back to you.

This analysis puts both into one figure, converts it to a monthly budget line, and states the reserve you would need available the day a claim happens - which is the number that decides whether the choice is workable.

Your numbers

Results update as you type. Nothing is sent anywhere.

Result

True annual cost

$1,433

Cash reserve needed

$2,500

Premium
$1,120
Expected claim share
$313
Monthly equivalent
$119
Premium share of total
78.18%
Claim share of total
21.82%
Years between claims
8 years
Five-year cost
$7,163

This is an estimate based on the values you entered. Actual premiums, coverage, eligibility and pricing vary by provider and by individual circumstances.

The reserve figure is the cash you would need available on the day of a claim. Insurance only converts a large unpredictable loss into a smaller predictable one if that reserve actually exists.

Expected out-of-pocket cost is an average across years, not a prediction of any particular year.

How to use the deductible break-even analysis

  1. Enter the annual premium at the deductible you are considering.
  2. Enter that deductible and a realistic typical claim size.
  3. Set how often you expect to claim, from your own history.
  4. Add any expenses the policy routinely does not cover, then read the total and the reserve.

What people use this for

  • Comparing two deductible choices on total cost rather than premium.
  • Setting the cash reserve a policy structure requires.
  • Budgeting insurance realistically as a monthly figure.
  • Deciding whether a high-deductible policy is affordable in practice, not just on paper.

Worked examples

Every figure below is produced by running this calculator against the example inputs, so the numbers always match the tool.

A high deductible with rare claims

A $1,120 premium with a $2,500 deductible, a $9,000 typical claim expected once every eight years.

True annual cost
$1,433
Cash reserve needed
$2,500
Expected claim share
$313

A low deductible with the same claims

A $1,520 premium with a $250 deductible on the same claim pattern.

True annual cost
$1,551
Cash reserve needed
$250
Premium share of total
97.99%

Premium and exposure are one decision

Every premium reduction is bought by accepting more exposure. Raising a deductible does not lower the cost of being insured - it moves part of that cost from a certain payment to an uncertain one.

Adding the expected share back in is what makes two structures comparable. Run this once for each deductible you are considering and compare the totals rather than the premiums.

The reserve is the practical constraint

The expected annual cost is an average across many years. The reserve is what you need on one particular day - and unlike the average, it is not optional.

If the reserve figure is not sitting in an accessible account, the higher deductible is the wrong choice regardless of what the total cost says. Insurance exists to make a large unpredictable loss into a smaller predictable one; a deductible you cannot fund breaks that.

Methodology and assumptions

What this calculator does, and what it deliberately does not do.

  • Total annual cost = premium + (deductible share of a typical claim × expected claims per year) + uncovered expenses.
  • The reserve is the deductible plus uncovered expenses, because a single claim demands both at once.
  • Claim frequency and size are your estimates. No probability distribution is modelled.
  • All figures are estimates produced from the values you enter. This site has no rate feed and no carrier data, so it cannot quote or price a policy.
  • Nothing you type is transmitted or stored - the calculation runs entirely inside your browser.

This calculator provides an estimate based on the information you enter. Actual insurance premiums, coverage, eligibility and pricing vary by provider and individual circumstances.

This website is not an insurance company, an insurance agency or a licensed broker. It does not sell insurance, does not provide insurance quotes, and is not authorised to give advice about which policy you should buy.

No result produced here is an offer of insurance or a guarantee of coverage. Only a licensed insurer or agent, working from your verified details, can quote or bind a policy.

Frequently asked questions

How do I estimate claim frequency?

Count your own claims over the last ten or fifteen years and divide. Two claims in twelve years is about 0.17.

Should the reserve be in cash?

Somewhere you can reach within days without borrowing or selling at a bad moment. That usually means a savings account rather than an investment.

Does a higher deductible always raise the total cost?

No. When the premium saving exceeds the extra expected claim share, the total falls - which is exactly what this comparison shows.

Is the expected out-of-pocket figure what I will pay?

No. In any single year it is either zero or the full deductible. The expected figure is an average for planning.

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