Question

Tara and Levi are trying to decide between homeowners insurance policies offered by two different agencies. AAA Insurance has offered to insure their home for an annual premium of $0.38 per $100 with a $500 deductible. Thompson’s Insurance has offered to insure the same home for an annual premium of $0.26 per $100 with an deductible of $1,000. Insurance Company Annual Premium (per $100) Deductible AAA Insurance $0.38 $500 Thompson's Insurance $0.26 $1,000 The house Tara and Levi purchased is valued at $425,000. Which of the following statements accurately describes the difference between the two plans? a. AAA Insurance is cheapest if Tara and Levi experience an incident that results in severe damage or loss to their home. b. AAA Insurance would be cheapest if Tara and Levi can avoid any incidents that result in severe damage or loss to their home. c. Thompson’s Insurance is cheaper even if Tara and Levi experience an incident that results in severe damage or loss to their home. d. Thompson’s will be more expensive whether or not Tara and Levi experience an incident that results in severe damage or loss to their home.

Answer 1

THE ANSWER IS c

Explanation:

Answer 2

Given:
House valued at $ 425,000
AAA Insurance: $0.38 per 100 with a $500 deductible
425,000 / 100 = 4,250
4,250 x 0.38 = 1,615 annual premium

Thompson’s insurance: $0.26 per 100 with a $1000 deductible
425,000 / 100 = 4,250
4,250 x 0.26 = 1,105 annual premium
If an incident occurs that results to damage or loss to their home, the couple shall shell out 500 before AA Insurance can take over payment for expenses. On the other hand, the couple will shoulder 1,000 before Thompson’s insurance take over payment for expenses in the event there is an incident that results to damage or loss to their home.

c. Thompson’s Insurance is cheaper even if Tara and Levi experience an incident that results in severe damage or loss to their home.