Insured vs Self-Insured Loss Calculator

Insurance is most valuable for catastrophic, low-frequency events; self-insurance often wins for high-frequency, low-severity losses. This calculator compares total cost of insurance (premium plus deductible payments) against the expected cost of self-insuring those same losses over a multi-year horizon — letting risk managers and property owners choose appropriately.

Annual insurance premium

Deductible

Expected losses / year

Average loss size

Analysis horizon (years)

Total insured cost (horizon)

$135,000

Total self-insured expected cost

$75,000

Self-insure savings (positive = self-insure wins)

$60,000

Insured cost / yr

$13,500

How the math works

Insurance is most valuable when actual losses exceed expected — it converts variable risk into fixed premium. Self-insurance wins when expected losses × time exceed accumulated premium. Catastrophic loss tail (rare events) usually justifies insurance even if EV math favors self-insure.

Don't forget the deductible: even with insurance, you pay deductible on each claim. Higher deductibles drop premium 10-30%.

How to Use

Enter annual premium and deductible.
Enter expected losses per year and average loss size.
Enter analysis horizon.
Read total insured cost vs total self-insured expected cost.

Frequently Asked Questions

When does self-insurance win?

When loss frequency × severity × horizon < accumulated premium. Common for low-severity high-frequency losses (resident damage, minor maintenance issues).

Tail risk caveat?

Even when EV math favors self-insure, catastrophic loss (fire, hurricane, lawsuit) can wipe out a self-insurer. Insurance bought for tail protection, not expected value.

Captive insurance?

Larger portfolios use captive insurance companies — formalize self-insurance with structure for tax efficiency. §831(b) micro-captives popular but heavily IRS-scrutinized.