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

Exercise 19

Solve the following application problems.
Explain why insurance companies charge a higher premium for auto insurance sold to a youthful operator. Do you think this is fair? (See Objective.)
Apply youthful-operator factors. Sometimes young people think they are being charged far too much for automobile insurance. Insurance companies base their rates on probabilities calculated from statistical data. The graph on the next page shows that drivers under 25 are far more likely to be involved in a fatal automobile accident than drivers 25 or older. Since these younger drivers are riskier to cover, insurance companies charge higher rates for youthful compared to adult drivers. The age at which a youth becomes an adult varies from company to company. Generally, drivers under 25 are considered youthful drivers, and drivers 25 or older are considered adults.

The following table shows typical youthful-operator factors based on age and on whether or not the operator has taken driver's training. You can see that the factors are much higher for youthful operators who have not taken driver's training. The steps to apply these factors follow.
1. Determine the total premium for all coverages desired.
2. Multiply the total premium by the youthful-operator factor from the table.