| Scenario | Current deductible | New deductible | Annual premium | Surcharge % | Expected claims |
|---|---|---|---|---|---|
| Conservative | $1,000 | $750 | $1,800 | 4% | 0.15 |
| Typical | $1,000 | $500 | $1,800 | 6% | 0.30 |
| High-risk | $2,000 | $500 | $2,700 | 9% | 0.75 |
Added cost = Chosen increment + Admin fee + (Chosen increment × Tax rate ÷ 100)
Optional cap: Savings per claim = min(Savings per claim, Cap)
Poisson: Expected savings = Σ P(k) × Savings × BenefitClaims(k)
PV uses a midpoint discount factor: 1 ÷ (1 + r)^(years ÷ 2)
- Enter current and new deductible amounts.
- Select a premium method and add pricing details.
- Choose claims mode and set expectations carefully.
- Adjust caps, coinsurance, and discount rate if needed.
- Calculate and review net, PV net, and breakeven.
- Check sensitivity to see pricing risk ranges.
- Download CSV or PDF for reporting and sharing.
Why deductible buy-down pricing varies
Deductible reductions are usually priced through a surcharge percentage, a flat endorsement, or a custom adjustment. The surcharge is commonly applied to the base premium and prorated for the term. A 6% surcharge on a 12‑month premium of 1,800 adds about 108 before fees and taxes. A flat endorsement may be higher or lower, depending on underwriting, loss history, and coverage line.
Quantifying the out-of-pocket change
The direct benefit is the deductible drop: current deductible minus new deductible. If you move from 1,000 to 500, the drop is 500 per covered loss event. When coinsurance applies after the deductible, lowering the deductible can also reduce the coinsurance-paid portion for some losses, which this calculator estimates using an average loss amount.
Expected claims and breakeven logic
The calculator supports manual expected claims or a derived estimate using exposures and an annual claim probability. For example, 3 vehicles with a 20% annual claim probability implies 0.6 expected claims per year. Breakeven claims are calculated as added cost divided by savings per claim, showing how many claims are needed to justify the buy-down on average.
Scenario planning and distribution effects
A simple expectation treats claims as a fractional average, while the optional Poisson method weights discrete claim counts. This helps when benefits are capped per year, or when you want a more realistic spread of outcomes. The scenario table and claim‑count chart show net benefit from zero claims through your selected maximum. Use the added cost mix and waterfall charts to validate where dollars move, and confirm that fees and taxes are not driving the decision more than the deductible change itself.
Timing, present value, and decision discipline
Added cost is often paid early, while savings occur only if a claim happens. A discount rate converts both to a midpoint present value, illustrating the effect of time value on the decision. Combine the PV view with the sensitivity chart to test pricing uncertainty and avoid overpaying for small deductible reductions.
1) What does “net benefit” mean here?
Net benefit equals expected savings from a lower deductible minus the added premium, fees, and taxes for the endorsement over the selected term.
2) Should I use surcharge percent or flat endorsement cost?
Use the value your insurer quotes. If you have both, set premium method to auto to compare, or choose the method that matches your billing documents.
3) What is the derived claims option?
Derived claims estimates expected claims as exposures × annual claim probability × term years. It is a quick planning tool when you do not track historical claim counts.
4) When is Poisson-weighted expectation useful?
Use it when claims are rare, outcomes are discrete, or savings are capped annually. It weights probabilities across claim counts rather than relying on one average.
5) How should I choose an average loss amount?
Pick a representative covered loss size for this policy line. If losses vary widely, run multiple cases to see how coinsurance and deductible changes affect savings.
6) Why does the sensitivity chart matter?
Small pricing changes can flip the result. The sensitivity chart shows how net benefit moves as the surcharge percent changes, helping you spot the maximum price you should accept.