Which of the following would result in paying the lowest insurance premiums?
a- high likelihood of loss, a low deductible
b- high likelihood of loss, no deductibles
c- low likelihood of loss, a large deductible
d- low likelihood of loss, no deductibles
The option that would result in paying the lowest insurance premiums is:
d- low likelihood of loss, no deductibles
When the likelihood of loss is low, the insurance company considers the risk of having to pay a claim as minimal, resulting in lower premiums. Additionally, having no deductibles means that in the case of a claim, the insurance company would be responsible for covering the full cost.
The option that would result in paying the lowest insurance premiums is option C - low likelihood of loss, a large deductible.
Here's the reasoning:
a- high likelihood of loss, a low deductible: This option would result in higher insurance premiums because there is a higher chance of having to file a claim, and a low deductible means the insurer would have to pay out more for each claim.
b- high likelihood of loss, no deductibles: This option would also result in higher insurance premiums because there is a high likelihood of loss, and having no deductibles means the insurer would have to cover the full cost of each claim.
c- low likelihood of loss, a large deductible: This option would result in lower insurance premiums because there is a low likelihood of loss, meaning fewer claims are expected to be filed. Additionally, having a large deductible means the policyholder would have to pay more out of pocket before the insurance kicks in, reducing the insurer's risk and therefore lowering the premiums.
d- low likelihood of loss, no deductibles: This option could result in higher insurance premiums compared to option C because even though the likelihood of loss is low, not having any deductibles means the insurer would have to cover the full cost of each claim.
Therefore, option C - low likelihood of loss, a large deductible, would result in paying the lowest insurance premiums.
To determine which option would result in paying the lowest insurance premiums, we need to consider two factors: the likelihood of loss and the deductible.
Insurance premiums are typically based on the level of risk the insurance company assumes by insuring you. Higher risk typically translates to higher premiums. The deductible is the amount you have to pay out of pocket before your insurance kicks in. The higher the deductible, the lower the risk for the insurance company.
Now, let's examine each option:
a) High likelihood of loss, a low deductible: This option would result in higher insurance premiums because the insurance company is taking on a higher risk due to the likelihood of loss, and the low deductible means they would have to pay out more in claims.
b) High likelihood of loss, no deductibles: This option would likely result in the highest insurance premiums. Without a deductible, the insurance company would have to cover the full amount of any claim, which significantly increases their risk.
c) Low likelihood of loss, a large deductible: This option would likely result in lower insurance premiums compared to the previous two options. The insurance company assumes less risk due to the low likelihood of loss, and the large deductible means you would have to pay a significant amount out of pocket before making a claim.
d) Low likelihood of loss, no deductibles: This option would likely result in the lowest insurance premiums. With a low likelihood of loss and no deductibles, the insurance company would face minimal risk and potential claim payouts.
Based on this analysis, the option that would result in paying the lowest insurance premiums is option d) - low likelihood of loss, no deductibles. However, it's important to note that insurance premiums are determined by various factors, and it's always best to consult with an insurance professional or compare quotes from different insurers to get the most accurate estimate for your specific situation.