Real cases

Two of the ideas you practise, meeting in one real situation. Choose, see what actually happens, then reflect.

A case · you decide

Expected loss and The premium price a phone plan

The premium & Expected loss — a 16-year-old deciding whether to insure her first phone

The idea in play: a premium is the expected loss plus a loading, so on average insurance costs more than it pays — you buy it for losses you cannot absorb.

Mina's phone cost $800. About 5% of phones like hers are lost or broken in a year. The store offers cover for $60 a year.

Expected loss: $800 × 0.05 = $40 a year on average.

The premium is that plus the insurer's costs and a buffer, so $60.

Is the plan a good deal for Mina?

Price a risk →

A case · you decide

The deductible and The pool set the car policy

The deductible & The pool — a 17-year-old comparing two car-insurance quotes with a parent

The idea in play: a higher deductible lowers the insurer's expected payout and so the premium — a good trade if you can cover the deductible.

Quote A has a $250 deductible for $1,400 a year. Quote B has a $1,000 deductible for $1,050 a year. The family has $2,000 in savings.

The deductible is the first slice of a claim you pay yourself.

The pool is everyone's premiums together; covering small claims yourself means the pool pays out less, so everyone's price can drop.

Which quote makes more sense for this family?

Price a risk →