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 falls, since the two shifts offset each other and the market returns to its old 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 and quantity both fall, since the maps cut supply and the subsidy does not change what insurers offer
3. 2.

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

   • At $900 and 800 policies: the maps cut supply, and the subsidy merely brings buyers back to where they were
   • 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 $1,000 and 1,000 policies: price is $200 above the old $800, and the quantity is unchanged

4. 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.

5. 3.

   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 10: a $20 rise cost 200 members, so each dollar lost about 10 members and demand is very elastic
   • About 2.5: price rose 10 percent and members fell 4 percent, so demand is elastic and a price rise cuts revenue
   • About 0.4: members fell 4 percent when price rose 10 percent, so demand is inelastic
6. 4.

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

   • No new members, since few members left when the price rose, so a $50 cut brings no one back
   • About 57 percent more members, since a $50 cut of 23 percent is divided by 0.4 to show how strongly enrollment rises
   • About 9 percent more members: a $50 cut is about 23 percent of $220, and 23 times 0.4 is about 9
   • About 23 percent more members, since a $50 cut should raise enrollment by the same percent as the price falls
7. 5.

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

   • 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
   • 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

8. 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.

9. 6.

   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: a claim costs $250 more under M, which is more than the $120 saved in premium
   • L is better, since Ona paid $540 last year and M's $480 would waste the plan Ona already knows
   • M is better only in a year with no claim, since a claim wipes out the $120 saved
10. 7.

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

    • 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 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
11. 8.

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

    • 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
    • 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

12. 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.

13. 9.

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

    • Car insurance prices fell in 2020 and then rose in each year shown after that, to 843.1 in 2024
    • Insurers raised prices by more than their costs rose, so every driver was overcharged
    • 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?

    • The cap would lower prices and raise the quantity sold, since buyers want more of anything that costs less
    • 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