Find your optimal insurance deductible

The Optimal Deductible Calculator is designed to help you select the deductible that provides the most value for you.  The Optimal Deductible Calculator can be used for any insurance policy that has a deductible including auto insurance, health insurance and homeowner’s insurance.

The general rule is the higher the premium the lower the deductible. A higher deductible means that there is less risk to the insurance company and more risk to the insurance consumer.  The reduction of risk to an insurance company typically results in a lower premium.

There is no set-in-stone formula for calculating your deductible; sometimes insurance companies will price in an “incentive” for a certain deductible, so determining your break-even point is always a good idea. Ask yourself whether the money you save in insurance premiums justifies taking on a higher risk, along with a higher deductible (and with health insurance, higher copays and coinsurance).

The Optimal Deductible Calculator will calculate the additional risk that you are taking on and divide it by the annual savings to determine your break-even point (number of years to break-even). Please note that the estimated number of medical visits and co-payment are only applicable to health insurance.

Optimal Insurance Deductible Calculator

Optimal Insurance Deductible Calculator

Auto insurance, health insurance and homeowners insurance
Auto insurance, health insurance and homeowners insurance
Auto insurance, health insurance and homeowners insurance
Auto insurance, health insurance and homeowners insurance
Estimate the number of medical visits you have in a year. (Health Insurance only)
Enter the per visit co-pay on the higher premium option (Health Insurance only)
Enter the per visit co-pay on the lower premium option (Health Insurance only)
This is the number of years that it will take you to break-even when choosing the lower deductible option

Example:

Consider calculating the additional risk that you are taking on and divide it by the annual savings to determine your break-even point. As an example, if you pay $1,200 a year to cover a vehicle and you can save $400 a year by increasing the deductible from $1,000 to $4,000, you are assuming an additional $3,000 of risk (out-of-pocket) in the event of an accident) for an annual savings on premiums of $400. Therefore $3,000 divided by $400 equals 7.5 years. Therefore, you would have to go 7.5 years to break even. Is that a reasonable risk?

On health insurance, you will also need to factor in your average annual co-pays and co-insurance for all health-related expenses. This does not consider any tax savings through a Health Savings Account.

Points to consider:

On an insurance policy, you are not always saving a lot on your premiums with a higher deductible.

  • Auto Insurance: An average driver experiences a Comprehensive or Collision claim approximately every 12 years.
  • Homeowners Insurance. The average homeowner makes an insurance claim once every nine years.
  • Health insurance. Your average claims and usage will vary. Add up all your medical expenses for the last 3 years and add them up. Also, consider if you may have additional expenses in the coming year.

Bottom line:

Keep in mind that you need to be able to pay the deductible. If the deductible will cause a significant strain on your savings or is just not available, then you may need to figure out how to pay the higher premium for a lower deductible policy until you can build up your savings fund. Don’t insure losses that you can predict and afford to pay. The key is to strike a balance between premium savings and claims costs. The challenge comes in determining where that equilibrium is. Most people choose deductibles in very unscientific ways. As well, most deductibles are probably at levels that don’t achieve the best possible cost of risk. The cost of risk, for the purposes of determining deductibles, is the cost of paying insurance premiums and claims below the deductible.

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