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You just bought a new car and want to get an insurance policy for it for the next 5 years. You will either have only

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You just bought a new car and want to get an insurance policy for it for the next 5 years. You will either have only one car accident in year 3 with the probability of 30%, or you will have no accident at all with the probability of 70%. The insurance company has three policies. The annual cost and the cost of having an accident under each policy is given in the following table. These payments are at the beginning of the year and start from year zero to 4. Also, the right column shows how much money you should pay for the accident in addition to the amount which the insurance company pays for the accident. Which policy should you choose assuming you can earn 10% on your money? Plan Annual Cost (5 Accident cost in case of an payments from accident in year 3 zero to year 4) $450 $11,200 Policy 1 - High Deductable Policy 2 - Medium Deductable Policy 3 - Low Deductable $670 $7.900 $750 $4,600 O None of them O Policy 2 O Policy 3 O Policy 1

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