Question

When a car is damaged in an accident, the cost to repair the car is exponentially distributed with a mean of $3,000; however, if the repair costs exceed the value of the car, the insurance company’s coverage is instead based on the value of the car. An insurance policyholder drives a car valued at $10,000 and has a deductible of $1,000. Given that an accident occurs,

a) What is the expected cost to the policyholder?

b) What is the expected cost to the insurance company?

Answer #1

Vladimir had a car accident that left him with minor injuries.
The car damage was estimated at $3,000 while his medical bill was
$800. If his car coverage policy has a $300 deductible and his
health insurance has $150 deductible. How much in total will the
insurance company cover?
Now if the car damage was estimated at $2300 while his medical
bill was $800 and his car coverage policy has a $400 deductible and
his health insurance has $200 deductible,...

Frank’s car is worth $10,000. There is a 10% chance of him
having a car accident, which would reduce the value of his car to
$0. His utility function is ?(?) = √?. . Frank can buy insurance,
which pays him $10,000 if an accident occurs. The price of
insurance is $1,000.
Answer the following questions:
Will Frank buy insurance? Justify your answer. [2
marks]
What is most he would pay for insurance? [2
marks]
Illustrate your answer using a...

The probability distribution for damage claims paid by the
Newton Automobile Insurance Company on collision insurance
follows.
Payment ($)
Probability
0
0.82
500
0.05
1000
0.04
3000
0.04
5000
0.03
8000
0.01
10000
0.01
a. Use the expected collision payment to
determine the collision insurance premium that would enable the
company to break even. Answer: $
b. The insurance company charges an annual rate
of $595 for the collision coverage. What is the expected value of
the collision policy for...

Joahn’s car, which he uses 100% for personal purposes, was
completely destroyed in an accident in 2016. The car’s adjusted
basis at the time of the accident was $13,000. Its fair market
value was $10,000. The car was covered by a $2,000 deductible
insurance policy. John did not file a claim against the insurance
policy because of a fear that reporting the accident would result
in a substantial increase in his insurance rates. His adjusted
gross income was $14,000 (before...

Harlon Hill's 2017 Lexus RX350 is insured by Allstate under a
PAP. While stopped at a red light at Coit and Custer, he is hit
from the rear by a drunk driver. Harlon is not injured, however,
his car heavily damaged. The repair cost for Harlon's car is
$5,000. Harlon has a $500 deductible for collision coverage. Harlon
notifies Allstate of the accident and asks that Allstate pay the
repair cost.
Allstate agrees to pay the repair cost (less deductible)...

Assume that Wonku drives a car carrying a market value
of $10,000. The only other asset he owns is the $3,000 in his
checking account. Thus, he has a total initial wealth of $13,000.
If he drives carefully, he incurs a cost of $3,000.
Assume he faces the following loss distributions when he
drives with or without care.
Drives with care
Drives without care
Probability
Loss
Probability
Loss
0.25
10000
0.75
10000
0.75
0
0
Now, when he has an...

Henry Edwards was injured in an accident caused by another
driver who did not have insurance. Henry's medical expenses would
be covered by:
Question 21 options:
A)
bodily injury liability.
B)
medical payments.
C)
no-fault coverage.
D)
uninsured motorists protection.
E)
collision.
Question 22 (0.4 points)
A $2,000 deposit to a tax-deferred individual retirement account
(IRA) for a person in a 25 percent tax bracket would result in a
reduced tax bill of:
Question 22 options:
A)
$1,200
B)
$1,500...

2. You have a PAP with the following coverages:
Liability Coverage: 100/300/50
Medical Payments Coverage: $5,000 each person
Uninsured Motorists Coverage: $100,000 each person
Collision, deductible: $250
Other-than-collision (comprehensive), deductible: $100
In the following cases, indicate whether the loss is covered and
the amount payable, if any, under the policy. Also list what part
of the policy the payment would be coming from.
a. While driving a golf cart at the country club, you
accidentally injure another golfer with the...

You are hurt in a car accident and your lawyer wins you a
$100,000 settlement to be distributed as follows:
$20,000 immediate payment
$5,000 a year for ten years (due at the end of each year)
$30,000 lump sum payment to be paid in ten years
If the lawyer's fee is $10,000 (due immediately), what is the
present value of this settlement if your opportunity cost of money
is 6.0%? You must solve for the "exact" answer
using the financial calculator...

Jane arrives in New York where she will hire a car from AA
Rentals for 24 hours. Her rental fee, which she has already payed,
includes AA Rentals risk taker insurance policy. Under this policy,
Jane will have to pay the first $2,000 if she causes an accident
(and the rest will be covered by the insurance policy). Any
accident, even a minor one, will result in at least $2,000 of
repair costs. At the AA Rentals counter, Jane is...

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