How to use this calculator
- Enter your current plan pricing and protection settings.
- Enter the alternative plan you are considering.
- Set realistic claim frequency and loss size assumptions.
- Choose a horizon and discount rate for present values.
- Submit to compare expected totals and savings.
Formula used
out_of_pocket = loss − insurer_payment
(1 + discount_rate)^(year−1).
Example data table
| Coverage type | Typical deductible | Coinsurance | Limit |
|---|---|---|---|
| Basic | 1,000 | 20% | 25,000 |
| Standard | 500 | 10% | 50,000 |
| Enhanced | 250 | 5% | 100,000 |
| Premium | 0 | 0% | Unlimited |
Calculator inputs
Expected Cost Model in Practice
This calculator compares two coverage types by estimating expected annual cost: premium plus expected out‑of‑pocket. Premium is calculated from base premium plus add‑ons, then adjusted by taxes/fees and discounts. With the sample defaults, Plan A premium is 1,354.32 and expected out‑of‑pocket is 262.50, producing 1,616.82 for year one. Plan B totals 1,267.08, so the first‑year nominal savings is 349.74.
Premium Components and Pricing Levers
Annual premium reflects add‑ons, taxes/fees, and discounts. In the default example, Plan B starts at 1,132.70 because (1,050 + 90) is taxed at 8% and reduced by an 8% discount. Plan A starts at 1,354.32 because (1,200 + 120) is taxed at 8% and reduced by 5%. Even small discount differences can compound across renewals.
Claim Frequency and Loss Severity Inputs
Risk assumptions drive the savings story. A claims rate of 0.25 means one claim every four years; a 6,000 loss per claim sets severity. Loss trend raises future losses, and premium trend raises future premiums. Using 3% loss trend and 4% premium trend, expected totals rise each year. If your claim frequency is 0.50, out‑of‑pocket matters twice as much as the default.
Deductible, Coinsurance, and Limit Effects
Per claim, the model applies deductible first, then coinsurance on remaining loss, and caps insurer payment at the limit when used. With a 6,000 loss, Plan A out‑of‑pocket is 1,050.00 (500 deductible plus 10% share), while Plan B is 537.50 (250 deductible plus 5% share). Limits matter most for large losses; enter 0 for unlimited.
Present Value Savings and Decision Checks
Each year is discounted by the selected discount rate, so near‑term savings weigh more than distant savings. Over five years with 6% discounting, the default scenario yields about 1,658.62 in present‑value savings and 1,864.15 nominal cumulative savings, with break‑even reached in year one. Stress‑test with higher losses, different trends, and realistic add‑ons. Confirm exclusions and renewal pricing before switching. Use the table and chart to explain tradeoffs clearly during renewal discussions internally.
FAQs
1) What does “expected total” mean?
It is the annual premium plus the expected out‑of‑pocket amount. Expected out‑of‑pocket equals claims per year multiplied by estimated out‑of‑pocket per claim. It summarizes average cost, not a guaranteed bill.
2) Why can a higher deductible plan look cheaper?
If claim frequency is low, premium savings can outweigh occasional higher out‑of‑pocket. Increase the claims-per-year input to test your risk. The chart will show when expected totals cross over.
3) How should I choose loss per claim?
Use a realistic average severity for your situation. Review prior invoices, repair estimates, or typical incident costs. If unsure, run three scenarios (low, mid, high) to see sensitivity.
4) What does “limit per claim” do here?
It caps the insurer’s modeled payment for a single claim. If losses exceed the effective payout, the remainder becomes out‑of‑pocket. Enter 0 when your plan effectively has no cap for this coverage.
5) Why include a discount rate?
A discount rate converts future expected costs into today’s value, improving long‑term comparisons. Higher discount rates reduce the weight of later years. It is commonly aligned with a target return or borrowing rate.
6) Are the CSV and PDF identical to the on-screen table?
They include the full horizon of yearly rows, even when the on-screen preview shows only the first years. Use downloads for sharing, archiving, and audit trails during renewals.