Texas HS Mathematical Models Question of the Day
Test your knowledge with a hand-picked multiple-choice question.
A Houston homeowner compares flood insurance plans. Low-deductible (LD): premium 950, deductible 1000 per flood claim. High-deductible (HD): premium 550, deductible 3000 per claim. Historical annual flood-claim counts: $P(0)=0.82,\ P(1)=0.15,\ P(2)=0.03$. Assume any claim meets the deductible and each claim is separate. Using expected value, which is the expected annual total cost for each plan, and which plan should be chosen on expected cost alone?
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