Zach is looking for a homeowners insurance policy for his new house. AAA Insurance company has offered him a plan that insures his home annually for $0.36 per $100 of value in the home. In order to make calculations easier, Thompson’s Insurance lists their annual homeowners insurance premium a bit differently, at $3.63 per $1,000 of value in the home.

Question

Zach’s house is worth $289,000. What should Zach be thinking as he chooses between the two insurance companies?
a.
$3.63 per $1,000 is approximately the same as $0.36 per $100. The premiums for the two insurance companies will be the same.
b.
The annual premium for his house would be cheaper through AAA.
c.
The annual premium for his house would be cheaper through Thompson’s.
d.
Since the two insurance companies list their premiums differently, the two cannot be compared.

Answer 1

To compare the premiums from both insurance companies, we need to calculate the annual premium for Zach's house using both rates.

1. AAA Insurance:

   • Rate: $0.36 per $100 of value
   • Value of the house: $289,000
   • Number of $100 increments in $289,000: 289,000 / 100 = 2,890
   • Annual premium = 2,890 x $0.36 = $1,040.40

2. Thompson’s Insurance:

   • Rate: $3.63 per $1,000 of value
   • Value of the house: $289,000
   • Number of $1,000 increments in $289,000: 289,000 / 1,000 = 289
   • Annual premium = 289 x $3.63 = $1,048.07

Now comparing the premiums:

• AAA Insurance = $1,040.40
• Thompson’s Insurance = $1,048.07

Based on the calculations:

• The annual premium for his house would be cheaper through AAA Insurance.

Therefore, the correct answer is: b. The annual premium for his house would be cheaper through AAA.