Insurance: premiums, deductibles and why people buy it

Grade 12 Social Studies Worksheet

Circle the best answer.

1. Read this first

   Use this

   Cards A to C on flood insurance in Town F (all made up for practice). Card A, "Flood insurance in Town F (made up)". Written for this sheet. Table, columns Price per policy per year | Policies buyers want | Policies insurers offer: $600 | 1,400 | 600; $700 | 1,200 | 800; $800 | 1,000 | 1,000; $900 | 800 | 1,200; $1,000 | 600 | 1,400. Card B, "New flood maps (made up)". Written for this sheet. Summary in our words, not a quotation: new maps show a higher flood risk. At every price, insurers will now offer 400 fewer policies than card A shows. Card C, "A state subsidy (made up)". Written for this sheet. Summary in our words, not a quotation: the state pays part of each premium. At every price, buyers will now want 400 more policies than card A shows.

2. 1.

   Pia uses cards A and B. Where does the flood-insurance market settle after the new maps?

   • At $900 and 1,200 policies: the price rises, but insurers still sell the 1,200 that card A shows at $900
   • At $900 and 800 policies: with less supply, the price rises and the quantity sold falls
   • At $1,000 and 600 policies: the price rises until buyers want just the 600 that insurers offered before
   • At $800 and 600 policies: quantity falls by the full 400 because the price stays where it was
3. 2.

   Esme uses cards B and C together. Before checking any numbers, what can be said about price and quantity?

   • Price falls, since the two shifts offset each other and the market returns to its old price and quantity
   • Price and quantity both fall, since the maps cut supply and the subsidy does not change what insurers offer
   • The price rises for sure, but the quantity could rise, fall or stay the same, depending on which shift is larger
   • Price and quantity both rise, since the subsidy adds buyers and the new maps do not remove any buyers
4. 3.

   Zee uses all three cards. Where does the market settle once both shifts happen?

   • At $900 and 1,200 policies: the subsidy raises demand, and the maps' effect on supply is too small to count
   • At $800 and 1,000 policies: equal shifts of 400 in opposite directions leave both price and quantity where they were
   • At $900 and 800 policies: the maps cut supply, and the subsidy merely brings buyers back to where they were
   • At $1,000 and 1,000 policies: price is $200 above the old $800, and the quantity is unchanged

5. Use this

   Cards A to C on a health plan in Town W (all made up for practice). Card A, "Premium and enrollment in Town W (made up)". Written for this sheet. Summary in our words, not a quotation: last year the plan cost $200 a month and had 5,000 members. This year the premium is $220 and 4,800 members stayed. Nothing else changed. Card B, "A state proposal (made up)". Written for this sheet. Summary in our words, not a quotation: the state will pay $50 a month toward every member's premium, hoping to raise enrollment by 10 percent. Card C, "Two readers (made up)". Written for this sheet. Summary in our words, not a quotation: Reader M says enrollment barely changed when the price rose, so a subsidy will bring few new members for its cost. Reader N says price rises shrink enrollment, so a cut will raise it a lot.

6. 4.

   Ren works out the price elasticity of demand from card A. What does it say?

   • About 0.04: just 200 of 5,000 members left, so the price hardly matters to the people in the plan
   • About 0.4: members fell 4 percent when price rose 10 percent, so demand is inelastic
   • About 2.5: price rose 10 percent and members fell 4 percent, so demand is elastic and a price rise cuts revenue
   • About 10: a $20 rise cost 200 members, so each dollar lost about 10 members and demand is very elastic

7. Use this

   Cards A to C on choosing a plan (all made up for practice). Card A, "Three plans (made up)". Written for this sheet. Table, columns Plan | Premium a year | Deductible: L | $600 | $250; M | $480 | $500; H | $420 | $1,000. Card B, "Ona's year (made up)". Written for this sheet. Summary in our words, not a quotation: Ona has a 20 percent chance of a claim large enough to reach any deductible on card A. If a claim comes, Ona pays the whole deductible. Ona has $600 in savings. Card C, "Last year (made up)". Written for this sheet. Summary in our words, not a quotation: last year Ona paid a $540 premium for a plan with a $250 deductible and made no claim.

8. 5.

   Tala compares plans L and M on cards A and B. Which statement about the step from L to M is best supported?

   • L is better, since Ona paid $540 last year and M's $480 would waste the plan Ona already knows
   • M is better on average: it saves $120 of premium and adds only $50 of expected cost
   • L is better: a claim costs $250 more under M, which is more than the $120 saved in premium
   • M is better only in a year with no claim, since a claim wipes out the $120 saved
9. 6.

   Luz compares plans M and H on cards A and B. Which reasoning is best supported?

   • H is better: in 80 percent of years there is no claim, and then H saves $60 over M
   • H is better, since it has the lowest premium of the three plans and the lowest premium is the lowest cost
   • H is the worse bet on average: it saves $60 of premium but adds $100 of expected cost, 20 percent of $500
   • H is worse, since $1,000 is double M's $500 deductible and double is more than a 12.5 percent premium saving
10. 7.

    Noah adds Ona's savings from card B. Which statement about plan H fits best?

    • Expected cost is not the only test: with $600 saved, a $1,000 deductible could leave Ona $400 short in a claim year
    • Expected cost decides it, so Ona should take the plan with the lowest average cost whatever savings are on hand
    • H is ruled out, since $1,000 is more than last year's $540 premium and so cannot be a fair price
    • Savings do not matter, since insurance exists to pay the deductible and the claim itself

11. Use this

    Cards A to C on car insurance prices (card A is BLS data; card B is a note; card C is made up). Card A, "Car insurance prices and all prices, 2019 to 2024". Source: BLS, CPI-U motor vehicle insurance (series CUUR0000SETE) and all items (series CUUR0000SA0), annual averages, read Nov 14, 2026. Table, columns Year | Motor vehicle insurance index | All items index: 2019 | 571.0 | 255.7; 2020 | 544.6 | 258.8; 2021 | 565.3 | 271.0; 2022 | 609.8 | 292.7; 2023 | 716.0 | 304.7; 2024 | 843.1 | 313.7. Each series is an index with its own base, so compare their changes, not their levels. Card B, "What the series measures". Source: BLS. Summary in our words, not a quotation: the motor vehicle insurance index follows the price of car insurance coverage that households buy. It does not report what insurers pay out in claims. Card C, "Two voices and a proposal (made up)". Written for this sheet. Summary in our words, not a quotation: Reader P says insurers were taking advantage of drivers. Reader Q says repair and claim costs rose faster than prices in general. A state proposes capping yearly rate rises at 5 percent.

12. 8.

    Esme compares the two series on card A for 2019 to 2024. Which statement fits the data best?

    • Car insurance rose about 48 percent against about 23 percent for all items, so it rose faster
    • Car insurance rose 843 percent, since the 2024 index is 843.1 and the index is itself a percent
    • Car insurance cannot have risen faster, since it fell from 571.0 to 544.6 in the first year of the span
    • Car insurance rose 272 points against 58 for all items, so it rose more than four times as fast
13. 9.

    Bo lists four claims. Which one can cards A and B not support?

    • Insurers raised prices by more than their costs rose, so every driver was overcharged
    • The 2023-to-2024 rise in car insurance prices, about 18 percent, was the largest one-year rise on card A
    • Car insurance prices fell in 2020 and then rose in each year shown after that, to 843.1 in 2024
    • From 2022 to 2024 car insurance prices rose about 38 percent while all items rose about 7 percent
14. 10.

    Zee reads reader Q and the 5 percent cap on card C. What is a likely effect if claim costs keep rising faster than 5 percent?

    • The cap would help drivers across the state, since the double-digit rises on card A show insurers have room to cut
    • The cap would hold prices at 5 percent a year with no change in the number of policies, since it fixes just the price
    • Insurers would offer fewer policies at the capped price, so some drivers could not buy the cover they want
    • The cap would lower prices and raise the quantity sold, since buyers want more of anything that costs less