To understand which statement correctly compares the premium prices of the given home insurance policies, it is important to understand the relationship between deductibles and premiums in insurance policies.
1. Deductible: This is the amount of money you pay out-of-pocket before the insurance coverage kicks in.
2. Premium: This is the amount you pay for the insurance coverage over a specified period.
Typically, there is an inverse relationship between the deductible and the premium of an insurance policy:
- A higher deductible usually results in a lower premium because the insured assumes more of the initial costs.
- Conversely, a lower deductible usually results in a higher premium because the insurer will cover more of the initial costs.
Given the deductible amounts for the two policies:
- Policy 1 has a deductible of \[tex]$2,100.00.
- Policy 2 has a deductible of \$[/tex]1,800.00.
Comparing the Deductibles:
- Policy 1 has a higher deductible (\[tex]$2,100.00) compared to Policy 2 (\$[/tex]1,800.00).
Since Policy 1 has the higher deductible, it will generally result in a lower premium compared to Policy 2, which has the lower deductible and thus, a higher premium.
Therefore, the correct statement is:
B. Policy 2 will have a higher premium because it has a lower deductible than Policy 1.
