Current-value decision model
Price refundable protection under one disruption scenario
The calculator probability-weights two states for each booking: the trip proceeds or it is disrupted. Recovery percentages apply only in the disruption state, and shared response cost remains visible instead of being hidden inside a probability.
| Booking and state | State outlay | State probability | Weighted outlay |
|---|
Detailed calculation process
Formula, substitutions, intermediate results, and reconciliation
E = (1-p)C + p[C(1-r)+X]
C is booking price, p disruption probability, r contract recovery rate in disruption, and X the additional response cost. Each option uses its own C and r.
Five-step risk comparison
Translate contract terms into two states
- Price standard and refundable packages with equivalent included services.
- Read each refund clause and enter the recovery percentage that actually applies.
- Choose one disruption probability as a scenario assumption and label its basis.
- Add costs that would arise in the disrupted state for either option.
- Compare expected outlay, disrupted loss, and the indifference probability before applying personal risk tolerance.
Five scenario fundamentals
Keep probability and contract recovery distinct
Proceed state
When the trip proceeds, the booking price is the modeled outlay.
Disruption state
Unrecovered booking cost plus response cost defines the loss path.
Recovery rate
Contract terms determine how much booking price returns; probability does not.
Premium
The refundable price difference is paid even when no disruption occurs.
Expected outlay
A probability-weighted average compares strategies but is not a predicted invoice.
Symbols and defaults
Audit both state-weighted equations
| Symbol | Meaning | Default | Unit |
|---|---|---|---|
| C_s | Standard booking | 1,350 | USD |
| C_r | Refundable booking | 1,540 | USD |
| p | Disruption chance | 0.18 | dimensionless |
| r_s | Standard recovery | 0.10 | dimensionless |
| r_r | Refundable recovery | 0.85 | dimensionless |
| X | Response cost | 240 | USD |
For each option, default expected outlay is 0.82 x booking price plus 0.18 x [booking price x (1 - recovery) + 240].
Three risk lenses
Expected dollars do not settle every choice
Contract exclusions
A high stated recovery is irrelevant when the actual disruption reason is excluded.
Liquidity timing
A refund arriving months later can create cash stress even if eventual recovery is high.
Risk tolerance
Two travelers can rationally choose differently at the same expected outlay because worst-case affordability differs.
Two scenario cases
Low-risk standard and exposed itinerary
Stable local event
A local traveler with replaceable transport enters low disruption probability and may prefer the lower standard price.
Costly nonrecoverable travel
A traveler facing weather-sensitive connections and high lost-booking exposure values the disrupted-state loss, not just the average.
Scenario glossary
Six risk-comparison terms
- Disruption state
- The modeled case in which the planned trip does not proceed normally.
- Recovery rate
- Share of booking price returned under applicable terms.
- Response cost
- Extra outlay caused by disruption.
- Expected outlay
- Probability-weighted average across states.
- Indifference probability
- Disruption chance where expected costs are equal.
- Premium
- Extra upfront price for refundable terms.
Risk questions
Frequently asked questions
Is disruption probability a weather forecast?
No. It is an explicit scenario assumption that can include covered personal, transport, organizer, or weather events only as you define them.
Why does response cost appear in both options?
The model assumes the entered extra cost occurs under disruption regardless of booking type; use zero or revise scope if that is not true.
What does the indifference probability mean?
It is the disruption chance where the two expected-outlay equations are equal under entered recovery terms.
Can a refundable option still lose money?
Yes. Refundable rarely means every cost returns, and response costs or exclusions can leave a substantial disruption outlay.
Should I choose the option with lower expected outlay?
Not automatically. Worst-case affordability, liquidity, exclusions, and personal risk tolerance also matter.
How do I handle insurance deductibles?
Reduce the effective recovery or add the deductible to disruption response cost, documenting the treatment and avoiding double counting.
Evidence and limits
Probability is an assumption, not authority
- The page does not forecast weather, illness, organizer cancellation, or transport disruption.
- Recovery percentages are valid only for covered reasons and documented contract terms.
- Claim delays, deductibles, exclusions, and insurer solvency are not modeled.
- Expected outlay does not measure utility, stress, or liquidity loss.
Evidence record: retain both contracts, covered-reason definitions, refund timing, probability rationale, and the exported scenario. Do not describe the lower expected outlay as guaranteed savings.
Sources and related tools
Travel-protection context
- NAIC consumer travel insurance guidance — coverage, exclusions, and claims context.
- FTC online shopping guidance — seller and refund verification.