Question

A motorcycle insurance company has 5,000 policy holders, and the accident rate is 0.08. the company needs to invest $400,000 this year.
each accident costs $18,000 on average.
if they want a plan with a deductible of $4,000, they need to charge a minimum of $___ for premiums.
if they want a plan with a premium of $1,000, they need to charge a minimum of $_____ for deductibles.

Answer 1

When the insurance company want a plan with a deductible of $4,000, they need to charge a minimum of $18000 for premiums.

What is a deductible?

It should be noted that a deductible simply means the amount of money that is paid out of the pocket of the policy holder.

From the information given, each accident costs $18,000 on average. Therefore, this is the minimum amount of premium.

When they want a plan with a premium of $1,000, the amount that they'll need to charge for deductibles will be:

= (4000/18000) × 1000

= $220

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