Question

Stephanie has a homeowners insurance policy for her $355,000 home with an annual premium of $0.42 per $100 of value and a deductible of $500. Under this policy, in the event of a major mishap, Stephanie would have a total annual out-of-pocket expense of Left-bracket (355,000 dollars divided by 100) times 42 cents right-bracket + 500 dollars = 1,991 dollars.
Stephanie would like to lower her premium by increasing her deductible. If Stephanie wants to increase her deductible to $1000, what annual premium would result in an annual out-of-pocket expense that is about the same as her current plan?
a.
$0.16 per $100 of value
b.
$0.28 per $100 of value
c.
$0.35 per $100 of value
d.
$0.46 per $100 of value

Answer 1

Current out-of-pocket = (355,000/100)*0.42 + 500 = 3550*0.42 + 500 = 1491 + 500 = $1991.

With deductible $1000 we need 3550*P + 1000 = 1991 → 3550*P = 991 → P = 991/3550 ≈ 0.279 → $0.28 per $100.

Answer: b.