Table 1 shows three insurance options offered to a small electronics repair business. Each option covers tools worth up to $10,000. The business owner wants...
Question 1 Report
Table 1 shows three insurance options offered to a small electronics repair business. Each option covers tools worth up to $10,000. The business owner wants an option with a low premium but also wants to understand the excess before selecting an answer.
| Option | Annual premium ($) | Excess per claim ($) |
|---|---|---|
| A | 360 | 100 |
| B | 280 | 250 |
| C | 450 | 0 |
(a) Calculate the difference between the annual premiums for options A and B. [2]
(b) Identify the option with no excess. [2]
(c) Explain two reasons why option B may not be the best choice for this business. [4]
Answer Details
(a) Find the difference by subtracting the lower annual premium from the higher one:
\[\$360-\$280=\$80\]
The difference is \(\$80\) [2].
(b) The policy with a \(\$0\) excess is the one costing \(\$450\) per year [2]. An excess is the amount the business must pay towards each claim.
(c) The \(\$280\)-premium policy may not be best for two explained reasons:
- It has the highest excess, \(\$250\) [1]. The business must fund this amount for every claim, which could create cash-flow difficulty [1].
- For small or repeated losses, claiming may not be worthwhile [1], because the \(\$250\) excess reduces, or may remove, the insurer's payment [1].
Also, a low premium alone does not prove good protection: the business should check risks covered, exclusions and limits.
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