Asked by Justine Watkins on Sep 24, 2024
Verified
Scatterbrain Samantha often forgets to lock her house.This has caused the probability of a burglary to be 30%.If her house gets broken into,she faces a property loss of $10,000,otherwise she gets to keep her $100,000.If Samantha is offered a full coverage insurance policy for her house at $2000,would she buy the insurance?
A) Yes because she gets to now enjoy her wealth risk-free
B) No,because she can take the risk and be better off
C) Yes,because she gains on average with the insurance
D) Both A&C
Full Coverage
In insurance, full coverage refers to a comprehensive policy that covers a wide range of potential risks and damages beyond the basic requirements.
Insurance Policy
is a contract between an insurer and a policyholder that outlines the terms and conditions under which the insurer agrees to financially protect the policyholder against specified risks.
- Quantify expected economic gains and losses in the context of different insurance policy conditions.
- Evaluate the impact of risk behavior on insurance decisions and premiums.
Verified Answer
AC
Alexander Casey3 days ago
Final Answer :
D
Explanation :
The expected loss due to burglary is 30% of $10,000, which is $3,000. Paying $2,000 for insurance saves her from this expected loss, making her better off on average. Additionally, with insurance, she eliminates the risk of losing $10,000, allowing her to enjoy her wealth without worrying about burglary.
Learning Objectives
- Quantify expected economic gains and losses in the context of different insurance policy conditions.
- Evaluate the impact of risk behavior on insurance decisions and premiums.
Related questions
How Much Would Nadia Be Willing to Pay for the ...
If the Company Can Correctly Anticipate the Adverse Selection,what Premiums ...
Scatterbrain Samantha Often Forgets to Lock Her House ...
Scatterbrain Samantha Often Forgets to Lock Her House ...
If the Insurance Company Can Successfully Screen Both Nadia and ...