Considering only this customer's premiums, deductible, and claims, the break-even period after which the customer could make a $10,000 claim for property damage without the insurance company suffering a loss is 15 months.
At this break-even period, the company will not make a profit or a loss.
Data and Calculations:
Monthly insurance premium payable = $600 (assumed to be paid monthly)
Deductible on the insurance policy = $1,000
Minimum coverage = 30/50/10
Coverage for injury or death to one person = $30,000
Coverage for injury or death to two or more people = $50,000
Coverage for damage to property = $10,000
Average accidents every year = 2
Total claims cost to the insurance before deductibles = $40,000 ($30,000 + $10,000)
Break-even period = 15 ($10,000 - $1,000)/$600
This break-even period is computed by deducting the deductible from the claim that the customer makes, and then dividing the result by the monthly insurance premium.
Thus, the customer could make a $10,000 claim for property damage without the insurance company suffering a loss after 15 months' break-even period.
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