How to use the trip cancellation insurance break-even calculator
- Enter the trip cost that you could not get back if you cancelled.
- Enter the policy premium, the share of the cost the policy pays and any deductible.
- Optionally enter your own estimate of the chance that you will cancel.
- Read the break-even chance and what the policy is worth on average at your estimate.
Formula
Policy pays = trip cost x share covered - deductible, never below zero
Break-even chance = premium / policy pays
Expected gain = your chance x policy pays - premium
This is an average-value comparison. Insurance also reduces the size of a bad outcome, which an average does not show.
A $4,000 trip and a $200 policy
If the policy pays all $4,000, the break-even chance is $200 / $4,000 = 5.00%. If you think there is a 3% chance of cancelling, the expected payout is $120 and the policy costs you $80 more than it is expected to return.
If the policy pays 75%, it pays $3,000 and the break-even chance rises to 6.67%. A $250 deductible lowers the payout to $3,750 and makes it 5.33%. A 12% estimate on the full policy gives an expected gain of $280.
What the break-even chance means
Insurance companies price policies so that, on average, they pay out less than they collect. If you think your chance of cancelling is below the break-even chance, buying the policy loses money on average. If you think it is above, buying is a bargain. Most people cannot judge their own odds very well, which is why the break-even number is more useful than any single guess.
People still buy insurance for good reasons. A cancellation could be very hard to afford, and the policy turns an unlikely big loss into a small certain cost. The tool does not value that peace of mind, so weigh it yourself.
Read the policy
Policies cover only listed reasons, exclude pre-existing conditions in many cases and may have time limits for buying. Check what yours covers before you rely on it. Other checks of this kind are the Extended Warranty Worth It Calculator, the Deductible Comparison Calculator and the Annual Fee Break-Even Calculator. The Trip Budget Planner puts the whole cost of the trip together.
Assumptions and limits
- The trip cost is the amount you could not recover if you cancelled.
- The chance of cancelling is your own guess and the tool has no data on it.
- The figures shown are examples. Use the details of your own policy.
- Medical, baggage and delay benefits are not included.
Frequently asked questions
What if the deductible is larger than the payout?
Then the policy can never pay anything, and the tool says so instead of showing a break-even number.
Should I use the cost of the whole trip?
Use only the part you could not get back. Refundable bookings are not part of the loss.
Can the break-even chance be above 100%?
Yes, if the premium is more than the most the policy can pay. Then it can never be worth buying on average.
Does this say whether I should buy insurance?
No. It compares the price with an average payout, and the decision also depends on your finances and tolerance for risk.