Question

Brian wants to buy a motorcycle and is planning to get motorcycle insurance. Suppose the average accident rate is 0.1, and the average expenses incurred on accidents is $38,000. The insurance plan has a yearly premium of $1,000 and a deductible of $4,000.
If after 4 years of insuring 100 people, 9 motorcycle drivers had an accident, where does the company stand after money has been taken in and paid out for this group of 100 insured people?

$85,500
-$36,000
$94,000
$58,000

Answer 1

It's $94,000
 
1,000 X 100 X 4 = 400,000

Answer 2

Answer:

The correct option is $94,000

Step-by-step explanation:

Yearly premium under the insurance plan = $1,000

Total premium from single motorcycle driver in 4 years = $1,000 * 4 = $4,000

Number of people insured = 100

Total premium collected from 100 motorcycle drivers = $4,000 * 100 = $400,000

Average expenses incurred on accident = $38,000

Deductible = $4,000

Net expenses incurred per accident = $38,000 - $4,000 = $34,000

In 4 years , 9 motorcycle drivers had an accident

Total expenses incurred for accident = $34,000 * 9 = $306,000

Net savings of Insurance Company = total premium - total expenses = $400,000 - $306,000 = $94,000

Hope it helps.

Thank you !!