Chapter 4.A, Problem 55E

Insurance Deductibles. Many insurance policies carry a deductible provision that states how much of a claim you must pay out of pocket before the insurance company pays the remaining expenses. For example, if you file a claim for $350 on a policy with a $200 deductible, you pay $200 and the insurance company pays $150. In the following cases, determine how much you would pay with and without the insurance policy.

a. You have a car insurance policy with a $500 deductible provision (per claim) for collisions. During a two-year period, you file claims for $450 and $925. The annual premium for the policy is $550.

b. You have a car insurance policy with a $200 deductible provision (per claim) for collisions. During a two-year period, you file claims for $450 and $1200. The annual premium for the policy is $650.

c. You have a car insurance policy with a $1000 deductible provision (per claim) for collisions. During a two-year period, you file claims for $200 and $1500. The annual premium for the policy is $300.

d. Explain why lower insurance premiums go with higher deductibles.