Question

Kirby pays an annual premium of $925 for automobile insurance, including comprehensive coverage of up to $250,000. He pays this premium for 5 years without needing to file a single claim. Then he gets into an accident during bad weather, for which no one is at fault. Kirby is not injured, but his car valued at $17,800 is totaled. His insurance company pays the claim and Kirby replaces his car. If he did not have automobile insurance, how much more would have Kirby paid for damages than what he had invested in his insurance policy? (4 points)

Answer 1

If Kirby did not have automobile insurance and he got into an accident in which his car was totaled and he was not at fault, he would be responsible for paying for the damages himself. In this case, Kirby's car was valued at $17,800 and he would have to pay that full amount out of pocket to replace his car.

However, since Kirby had comprehensive coverage with a limit of up to $250,000, his insurance company paid the claim for the full value of his car, which was $17,800. Therefore, Kirby's comprehensive coverage saved him $17,800 in this instance.

Over the 5 years that Kirby paid an annual premium of $925, he invested a total of $4,625 in his automobile insurance policy. Since he did not file any claims during that time, he did not receive any payouts from his insurance company during that period of time.

Therefore, the amount that Kirby saved by having comprehensive coverage and being able to claim the full value of his car in the accident is $17,800 - $0 = $17,800.

Thus, Kirby saved $17,800 by having automobile insurance rather than having to pay for the damages out of pocket, which is much more than the $4,625 that he invested in his insurance policy over 5 years.