Question

Eleanor paid an annual premium of $2,000 in total coverage for her homeowner's insurance, including $250,000 in damage coverage and $250,000 in liability coverage. Six years into her policy, a tree fell on Eleanor's home and caused $40,000 worth of damage. Eleanor's insurance company paid the claim. Did the cost of the benefit of transferring the risk to the insurance company outweigh the cost of the premium

Answer 1

Yes, the benefit of transferring the risk to the insurance company did outweigh the cost of paying insurance premiums.

During six years Eleanor paid $2,000 per year in insurance premium, totaling $12,000.

After the tree damaged Eleanor's house, the cost of the repairs was $40,000, which is much higher than $12,000.