{
  "slug": "deductible-buy-down-breakeven",
  "title": "Deductible Buy-Down Breakeven Calculator",
  "heading": "Insurance Deductible Buy-Down Calculator",
  "category": "financial",
  "url": "https://www.revenuelab.fyi/toolbox/deductible-buy-down-breakeven",
  "summary": "Find out how many years it takes a lower deductible to pay for itself in premium.",
  "description": "Choosing a lower deductible always means paying more premium every single year in exchange for paying less out of pocket on the rare year you file a claim. This is a straightforward breakeven problem: the extra premium you pay for the lower deductible needs to be compared against the deductible savings you'd only realize if you actually file a claim. This calculator computes how many years of the extra premium equal one claim's worth of deductible savings, then factors in your estimated claim frequency to show whether the lower deductible is expected to pay off over a typical holding period like 10 years.",
  "formula": "Deductible savings per claim = higher deductible − lower deductible; breakeven years = deductible savings ÷ extra annual premium; expected value = (claims per year × deductible savings) − extra annual premium, summed over horizon.",
  "dateModified": "2026-09-30",
  "run_url": "https://www.revenuelab.fyi/api/public/calc?tool=deductible-buy-down-breakeven",
  "inputs": [
    {
      "id": "highDeductible",
      "label": "Higher deductible option",
      "kind": "number",
      "hint": null,
      "default": 2000,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "lowDeductible",
      "label": "Lower deductible option",
      "kind": "number",
      "hint": null,
      "default": 500,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "extraPremium",
      "label": "Extra annual premium for lower deductible",
      "kind": "number",
      "hint": null,
      "default": 180,
      "unit": "$",
      "min": 0,
      "max": null
    },
    {
      "id": "claimsPerYear",
      "label": "Expected claims per year (frequency)",
      "kind": "number",
      "hint": null,
      "default": 0.15,
      "unit": null,
      "min": 0,
      "max": 3
    },
    {
      "id": "horizon",
      "label": "Years you'll hold this policy",
      "kind": "number",
      "hint": null,
      "default": 10,
      "unit": null,
      "min": 1,
      "max": 40
    }
  ],
  "outputs": [
    {
      "id": "netExpectedValue",
      "label": "Net expected value of lower deductible",
      "format": "currency",
      "hint": null,
      "primary": true
    },
    {
      "id": "breakevenClaimsNeeded",
      "label": "Claims needed over horizon to break even",
      "format": "decimal",
      "hint": null,
      "primary": false
    },
    {
      "id": "totalExtraPremiumPaid",
      "label": "Total extra premium over horizon",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "expectedDeductibleSavings",
      "label": "Expected deductible savings over horizon",
      "format": "currency",
      "hint": null,
      "primary": false
    }
  ],
  "worked_example": {
    "inputs": [
      "Higher deductible option: 2000 $",
      "Lower deductible option: 500 $",
      "Extra annual premium for lower deductible: 180 $",
      "Expected claims per year (frequency): 0.15",
      "Years you'll hold this policy: 10"
    ],
    "outputs": [
      "Net expected value of lower deductible: $450",
      "Claims needed over horizon to break even: 1.2",
      "Total extra premium over horizon: $1,800",
      "Expected deductible savings over horizon: $2,250"
    ]
  },
  "how_to": {
    "title": "How to use this",
    "steps": [
      "Enter higher deductible option ($).",
      "Enter lower deductible option ($).",
      "Enter extra annual premium for lower deductible ($).",
      "Enter expected claims per year (frequency).",
      "Enter years you'll hold this policy.",
      "Read your net expected value of lower deductible on the right — it updates as you type.",
      "Hit Share to keep the scenario or send it to someone."
    ]
  },
  "scenarios": [
    {
      "name": "Conservative",
      "description": "Lower-end numbers — what if things land soft?",
      "values": {
        "highDeductible": 1200,
        "lowDeductible": 300,
        "extraPremium": 110,
        "claimsPerYear": 0.09,
        "horizon": 6
      }
    },
    {
      "name": "Typical",
      "description": "Defaults — the most common real-world setup.",
      "values": {
        "highDeductible": 2000,
        "lowDeductible": 500,
        "extraPremium": 180,
        "claimsPerYear": 0.15,
        "horizon": 10
      }
    },
    {
      "name": "Ambitious",
      "description": "Higher-end numbers — what if things really pop?",
      "values": {
        "highDeductible": 3200,
        "lowDeductible": 800,
        "extraPremium": 290,
        "claimsPerYear": 0.24,
        "horizon": 16
      }
    }
  ],
  "limitations": [
    "Results are estimates before tax, fees, and inflation unless an input explicitly covers them.",
    "Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.",
    "This is educational maths, not financial advice. Check anything contractual with the lender or your accountant."
  ],
  "faq": [
    {
      "q": "How do I estimate my expected claims per year?",
      "a": "For auto and home, industry data suggests the average policyholder files a claim roughly once every 8-12 years for home (about 0.08-0.12/year) and slightly more often for auto in high-traffic areas. Your own claim history is the best guide — if you haven't filed a claim in a decade, use a lower frequency than the national average."
    },
    {
      "q": "If the net expected value is negative, does that mean I should never buy the lower deductible?",
      "a": "It means the lower deductible costs more in premium on average than it saves in claims, which is true for most buy-downs since insurers price them to be profitable. Many people still choose lower deductibles for cash-flow reasons — a $500 deductible is easier to cover in an emergency than $2,000 — so this is a risk-tolerance decision, not purely a math one."
    },
    {
      "q": "Does filing more claims for smaller amounts actually help me financially?",
      "a": "Often no. Many insurers apply a surcharge or non-renewal risk after a claim, especially a second one within a few years, which can raise your premium by more than the claim payout was worth. A lower deductible only pays off financially if you file claims you'd have filed regardless of deductible level, not if it encourages you to file more."
    },
    {
      "q": "Should I raise my deductible if I have a solid emergency fund?",
      "a": "Generally yes — raising your deductible from $500 to $2,000 typically saves noticeably more in annual premium than the extra $1,500 of self-insured risk costs you over time, as long as you can actually cover that $2,000 out of pocket without financial hardship if a claim occurs."
    }
  ],
  "related": [
    "https://www.revenuelab.fyi/toolbox/claim-vs-pay-out-of-pocket",
    "https://www.revenuelab.fyi/toolbox/replacement-cost-vs-acv"
  ],
  "license": "CC-BY-4.0",
  "citation": "RevenueLab — Deductible Buy-Down Breakeven Calculator (https://www.revenuelab.fyi/toolbox/deductible-buy-down-breakeven)"
}