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

Answer 1

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 [ ($355,000 / 100) * $0.42 ] + $500 = $1,991

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: B) $0.28 per $100 of value

Answer 2

Step 1:
We need to find how many $100s are in $355,000 because that is the portion she is responsible to pay.

355,000 ÷ 100= 3,550

Step 2:
Multiply $0.42 by 3,550

0.42 * 3,550= $1,491 out of pocket total to pay for every $100 (before deductible)

Step 3:
Total payment = deductible plus portion to pay for every $100

Total= $1,491 + $500= $1,991 total annual out of pocket expenses

$1,991 would be the total annual out of pockets expenses in the event of a major mishap.

Hope this helps! :)