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Suppose that you head an insurance company. Your most popular insurance policy has a premium of $600 and a deductible of $1,000. This insurance policy provides your state’s minimum coverage of $30,000 for injury or death to one person, $50,000 for injury or death to two or more people, and $10,000 for damage to property, which is called 30/50/10 coverage. Assume that, on average, 2 of your 100 customers have an accident every year. One of the accidents causes damage to property and the other causes injury or death to one person. Both drivers file for the maximum claims
Now assume that you are one of the customers purchasing this popular insurance policy with the company. Considering only your premiums, deductible, and claims, what is the break-even period after which you could make a $10,000 claim for property damage without the insurance company suffering a loss? Explain your answer.

Sagot :

anthougo

Considering only this customer's premiums, deductible, and claims, the break-even period after which the customer could make a $10,000 claim for property damage without the insurance company suffering a loss is 15 months.

At this break-even period, the company will not make a profit or a loss.

Data and Calculations:

Monthly insurance premium payable = $600 (assumed to be paid monthly)

Deductible on the insurance policy = $1,000

Minimum coverage = 30/50/10

Coverage for injury or death to one person = $30,000

Coverage for injury or death to two or more people = $50,000

Coverage for damage to property = $10,000

Average accidents every year = 2

Total claims cost to the insurance before deductibles = $40,000 ($30,000 + $10,000)

Break-even period = 15 ($10,000 - $1,000)/$600

This break-even period is computed by deducting the deductible from the claim that the customer makes, and then dividing the result by the monthly insurance premium.

Thus, the customer could make a $10,000 claim for property damage without the insurance company suffering a loss after 15 months' break-even period.  

Learn more about break-even here: https://brainly.com/question/22875945

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