Question

You are looking to get car insurance, with maximum coverage of 128 thousand USD. Let's model the probability of losses over the year as a discrete distribution, as follows:

1 K: 10%
5 K: 2%
10 K: 1%
50 K: 0.5%
128 K: 0.1%

If you decide to self-insure up to $563 of loss (in other words, take a deductible of $563), how much less will you have to pay for your policy?

Hint: find the probability of a loss of that amount or greater occurring, then find the expected value, and tack on 10% profit margin - and that'd be the part you won't have to pay.

Answer 1

Here the below workings shows that how much one has to pay less if one take the deductible of $563.

As shown below one has to pay $61.93 less on insurance