What it does
Insurance costs more, on average, than it pays back, because the insurer has costs. It can still be worth it when a loss would hurt you badly. This tool compares the price with the expected loss, then asks how much a cautious person with your savings would pay to avoid the risk.
It gives a neutral verdict, not a recommendation. To choose between two deductibles use the deductible chooser, to look up a word see insurance terms explained, and to check the price fits your month use the budget planner.
How to use it
- Enter the cover price per year, the chance of the loss per year and the size of the loss.
- Enter the deductible (the part you still pay) and the savings you could use after a loss.
- Set your risk attitude and read the result. The example buttons fill all the boxes with made-up numbers.
What each setting does
- Chance: 1% means 1 in 100 years. The line below shows “1 in N years”.
- Deductible: you pay this on a loss; the cover pays the rest.
- Risk attitude (0 to 4): 0 means only averages count. 1 is typical. 4 is very cautious, so a big loss weighs a lot more.
Worked example
Savings 100,000, loss 50,000, chance 1%, price 600, no deductible. The expected loss is 500 a year. At attitude 0 the most worth paying is 500, so 600 is 20% above the fair price. At attitude 1 it is about 690.8, so 600 is below that.
FAQs
What is the loading? How much of the price is above the fair price (the expected payout).
Why does attitude matter? People who cannot absorb a loss reasonably pay more than the average to avoid it.
Is this advice? No. The chance you enter is a guess; try several values.
How it’s worked out: the most worth paying is the price at which your expected utility with cover equals that without it (CRRA utility, found by bisection).
Where the numbers come from
- Expected-loss arithmetic and constant relative risk aversion (CRRA) utility, a standard textbook model: u(w) = (w^(1-g) - 1) / (1 - g), with u(w) = ln(w) when g = 1. Checked 2026-11-10 against a hand-worked example. The presets are examples, not quotes.
Standard scientific values, such as constants, atomic weights and melting points, are facts found in every textbook; we name where ours were checked. If you are an author or publisher and want a value, a credit or a table changed or removed, tell us and we will act quickly.
Last updated 2026-11-10.