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.

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

   • Price and quantity both rise, since the subsidy adds buyers and the new maps do not remove any buyers
   • The price rises for sure, but the quantity could rise, fall or stay the same, depending on which shift is larger
   • 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

3. 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.

4. 2.

   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
5. 3.

   Reader N says the subsidy on card B will raise enrollment a lot. Bo applies card A's elasticity. What does it suggest?

   • About 23 percent more members, since a $50 cut should raise enrollment by the same percent as the price falls
   • About 9 percent more members: a $50 cut is about 23 percent of $220, and 23 times 0.4 is about 9
   • About 57 percent more members, since a $50 cut of 23 percent is divided by 0.4 to show how strongly enrollment rises
   • No new members, since few members left when the price rose, so a $50 cut brings no one back
6. 4.

   Kira checks who receives the state's money, using cards A to C. Which statement fits the evidence best?

   • The money is well targeted: each dollar of subsidy brings in a new member, so a new member costs $50
   • Most of the money goes to members who would have joined anyway: 5,240 get $50, about 440 are new
   • Reader M is right that the subsidy is wasted, since so few members respond to a price cut
   • The subsidy pays for itself, since each new member's premium covers the $50 given to each member

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?

   • M is better on average: it saves $120 of premium and adds only $50 of expected cost
   • L is better, since Ona paid $540 last year and M's $480 would waste the plan Ona already knows
   • 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 the worse bet on average: it saves $60 of premium but adds $100 of expected cost, 20 percent of $500
   • H is better, since it has the lowest premium of the three plans and the lowest premium is the lowest cost
   • H is better: in 80 percent of years there is no claim, and then H saves $60 over M
   • 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?

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

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 272 points against 58 for all items, so it rose more than four times as fast
    • 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 843 percent, since the 2024 index is 843.1 and the index is itself a percent
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
    • 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
    • The 2023-to-2024 rise in car insurance prices, about 18 percent, was the largest one-year rise on card A
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?

    • Insurers would offer fewer policies at the capped price, so some drivers could not buy the cover they want
    • 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
    • The cap would lower prices and raise the quantity sold, since buyers want more of anything that costs less