Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 60

Describe four factors that determine the premium on an automobile insurance policy. (See Objective.)
Describe the factors that affect the cost of motor-vehicle insurance. Automobile insurance is one of the most common types of insurance. Banks or credit unions that finance automobiles require borrowers to buy automobile insurance. Many states require automobile insurance for people living and driving in those states. As you can see from the graph, the average cost of car insurance has increased sharply.

The premium , or cost, of an insurance policy is determined by actuaries who work for the insurance company. Actuaries look at the frequency and severity of accidents based on several factors, including
• location of the insured vehicle,
• age and sex of the driver,
• miles driven, and
• driving history of the driver.
These factors help measure the risk of insuring a particular driver, which is used to determine the premium. For example, drivers between 16 and 25 years of age are more likely to be involved in accidents and are therefore charged a higher premium. Some automobiles are more likely to be stolen than others, resulting in higher premiums for their owners. Several automobile coverages are now discussed.