Question

Ricardo paid an annual premium of $1,200 in total liability coverage for his car, including up to $200,000 in bodily injury coverage and $100,000 in property damage coverage. Ten years into his policy, Ricardo caused an accident that resulted in the other driver claiming $40,000 in medical costs and $20,000 in car damage. Did the cost of the annual premiums outweigh the benefit of transferring the risk to the insurance company?

Answer 1

Answer choices:

Yes, the cost of the annual premium for 10 years was the same as the accident claims
Yes, the cost of the annual premium for 10 years was more than the accident claims
No, the cost of the annual premium for 10 years was less than the accident claims
No, the cost of the annual premium for 10 years was more than the accident claims

Answer 2

The annual premium ($1,200) times the length of time (10 years) equals $12,000 or
\[1,200\times10 =12,000\]
So the correct answer is:
No, the cost of the annual premium for 10 years was less than the accident claims.