Suppose for the coming year a family has calculated its expected value for car repairs to be $3,000. The family decides to buy a car insurance policy that would cover such claims. This insurance policy would cost a total of $3,000 for the household. This insurance policy is:
A) overcharging the family and is not fair.
B) an example of a fair insurance policy.
C) undercharging the family.
D) not appropriate for the family, and they should not buy it.

Question

Quizplus · Accepted Answer

A fair insurance policy is one where the premium equals the expected value of the claims, which in this case is $3,000.

Suppose for the Coming Year a Family Has Calculated Its