Answer:
The benefit of transferring the risk to the insurance company does not outweigh the cost of the premium. The cost of the premium is $230,000 greater than the benefit.
Explanation:
Step 1: Determine the cost of the premium
The total cost of the premium=total liability coverage+bodily injury coverage+property damage coverage
where;
The total cost of the premium=unknown
total liability coverage=annual premium×number of years
total liability coverage=1,000×10=$10,000
bodily injury coverage=$200,000
property damage coverage=$100,000
replacing;
Total cost of the premium=10,000+200,000+100,000=$310,000
Step 2: Determine the benefit of transferring the risk
This can be expressed as;
Total benefits=medical benefit+car damage benefit
where;
medical benefit=$60,000
car damage benefit=$20,000
replacing;
Total benefits=60,000+20,000=$80,000
Total cost of the premium ($310,000) is greater than the total benefits ($80,000) by (310,000-80,000)=$230,000
Answer
No, the cost of the annual premium for 10 years was more than the accident claims
Explanation:
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