Suppose that,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

Since the expected value for car repairs is $3,000, and the insurance policy would cost $3,000, this insurance policy is a fair insurance policy. The family would essentially be transferring the risk of potential car repairs to the insurance company, and paying a fair price for that transfer.

Suppose That,for the Coming Year,a Family Has Calculated Its Expected