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Example 13.1.2 Using the tables above, determine the semiannual rate for a policy for:(a) A 17-year-old male with no driver training who lives in region A and
commutes 4 miles per day(b) A 27-year-old married female living in Region C with a 17-mile daily commute(c) A 67-year-old single man who lives in Region B with a 12-mile commute who
qualifi es for the long-term rate(a) From the basic rate table, we fi nd a basic rate of $182.50. From the multiplier table, we
see a multiple of 2.55. So the rate would be ($182.50)(2.55) $465.38.(b) The basic rate is $192.05, the multiplier is 1.35. Rate ($192.05)(1.35) $259.27.(c) The basic rate is $230.15, the multiplier is 1.10. (The fact that he is single is irrelevant in
this company’s rate book for ages 65.) Rate $230.15(1.10) $253.17.The multipliers function in the same way as a percent increase or decrease applied to the
basic premium. This provides an alternative way of stating the effect of rating classifica-
tions, and they are sometimes expressed in that way.Example 13.1.3 What percent over the basic rate does a 26-year-old married man
pay? What percent below the basic rate does a 54-year-old-woman pay?The man’s multiplier is 1.45, so he would pay 145% of the basic rate. So he pays 45% over
the basic rate.The woman’s multiplier is 0.85, so she would pay 85% of the basic rate. She pays 15% below
the basic rate.The rate book and examples used above are intended to represent a typical rate book and
its use; it should be clearly understood though that the example is completely hypothetical,
and any given insurance company may set its tables up differently. For example, the lower
“long-term client” rate might be given as a percent discount instead of a separate rate in
the book, the workday commute might be dealt with as a multiplier instead of a separate
rate, or separate rates might be given by gender rather than have multipliers to deal with
genders. The company may also charge a higher premium for customers who have been
involved in traffic accidents. (See Exercises 15-18 for more on this.) While the specifics
might differ, though, this is illustrative of the general way a rate book might be set up.Deductibles, Coinsurance, and Coverage Limits
Insurance policies seldom provide complete and unlimited coverage of a claim, regardless
of its size. A deductible is the amount of expense that the policyholder must pay herself
before the insurer will pay any benefits.Example 13.1.4 Adam has comprehensive coverage on his car. The deductible is $500.
The car’s value is $13,200, and it is stolen. How much will the insurer pay on this claim?Adam is responsible for the $500 deductible; the insurer pays the claim beyond that. So the
insurer will pay $13,200 $500 $12,700.Example 13.1.5 Kyle and Sara’s homeowner’s insurance policy has a $1,000
deductible. Some of the house’s siding is blown off in a windstorm, costing $735.22 to
repair. How much will the insurer pay on this claim?Kyle and Sara are responsible for the fi rst $1,000 in claims. Since the siding damage was less
than this, the insurance company will pay nothing.Coverage limits specify a maximum amount that the insurer will pay for claims on a policy. For
example, a business should carry liability insurance to financially protect itself against lawsuits,13.1 Property, Casualty, and Liability Insurance 529