Question

Eleanor paid an annual premium of $2,000 in total coverage for her homeowner's insurance, including $250,000 in damage coverage and $250,000 in liability coverage. Six years into her policy, a tree fell on Eleanor's home and caused $40,000 worth of damage. Eleanor's insurance company paid the claim. Did the cost of the benefit of transferring the risk to the insurance company outweigh the cost of the premium? (5 points)

a. Yes, the cost of the annual premium for 10 years was more than the accident claims
b. Yes, the cost of the annual premium for 10 years was less than the accident claims
c. No, the cost of the annual premium for 10 years was the same as the accident claims
d. No, the cost of the annual premium for 10 years was more than the accident claims

Answer 1

b. Yes, the cost of the annual premium for 10 years was less than the accident claims

Step-by-step explanation:

Eleanor paid 2,000 per year

after six year the amount of premium paid was 2,000 x 6 = 12,000

after this will paid another 4 more years: 8,000

The insurance claim granted eleanor for 40,000

Which is above the total premium paid.

Therefore, the insurance was a worthwhile investment for Eleanor