Comprehensive Guide
Learn more in our Insurance Guide.
How it works
self-insurance vs traditional insurance calculator takes your inputs and produces annual insurance cost, expected annual loss, self-insure fund after 5 years, years to self-insure fully. Compare the cost of self-insuring (saving the premium) vs buying traditional insurance. You provide 5 inputs: Annual insurance premium (currency, in dollars) (default: 1500 dollars); Deductible if insured (currency, in dollars) (default: 1000 dollars); Maximum potential loss (currency, in dollars) (default: 50000 dollars); Probability of loss per year (%) (percent, in percent) (default: 3 percent); Annual return on self-insurance fund (%) (percent, in percent) (default: 5 percent). The calculator returns 4 outputs: Annual insurance cost (a secondary output); Expected annual loss (a secondary output); Self-insure fund after 5 years (a secondary output); Years to self-insure fully (the primary result). Insurance is the mathematics of rare but catastrophic events. The right coverage amount depends on your assets, income, dependents, and risk tolerance — not on rules of thumb. This tool computes the actual figures so you can compare premiums against the expected value of protection. The underlying formula: Expected loss = Max loss × Claim probability | Fund balance = Premium saved × ((1 + return)^years − 1) ÷ return With the default values, years to self-insure fully is computed from the interaction of every input field — change any one of them and the result updates immediately, so you can stress-test different scenarios without re-entering the whole form. Adjust the inputs to match your real financial situation. The defaults are realistic starting points, but every person's circumstances differ — your actual income, expenses, rates, and timelines will produce a different answer. Use the tool iteratively: start with the defaults, then change one variable at a time to see which factor has the largest impact on your outcome.Formula
Expected loss = Max loss × Claim probability | Fund balance = Premium saved × ((1 + return)^years − 1) ÷ return
Tips
- Self-insure for low-cost, low-probability risks (appliances, electronics).
- Never self-insure catastrophic risks (home, liability, health, income).
- Keep the self-insurance fund separate from your emergency fund.
- Start with 1 year of premiums saved before dropping the policy.
Frequently asked questions
When does self-insurance make sense?
When the annual premium exceeds 3–5× the expected annual loss. Example: $150/year extended warranty on a $1,000 item with 5% failure rate = $50 expected loss. Premium is 3× the expected loss.
What risks should I never self-insure?
Catastrophic risks: home destruction, major liability lawsuits, disability, premature death, and major medical expenses. These have potentially unlimited or life-changing costs.
How accurate are the calculator results?
The math is exact — the same formulas a financial professional would use by hand. The precision of the output depends entirely on how realistic your inputs are. Use your actual numbers rather than estimates when possible. The defaults are reasonable starting points, but your real income, rates, and timeline will produce a different result.