Question 16 • {MDVA} Healthy Living [Semester Only] (M)
Sally just purchased a beautiful home on a riverbank for what she thought was a very good deal. She later learned that her house was very susceptible to flood damage during the rainy season. Which of the following statements best describes the effect the location of Sally’s new home will have on her homeowners insurance premium?
Answer
A
Financial loss due to flood damage is likely. Her insurance premiums will be higher than homes not on the waterfront.
B
Since floods are likely, the value of the home decreases significantly, lowering the insurance premium at the same time.
C
Since floods happen so infrequently, they are not considered a real threat to the value of the home. Sally’s insurance premium will not be affected.
D
While extremely annoying, flood damage is usually inexpensive and will not affect the value of the home. Sally’s insurance premium should not be affected.
Explanation
A home in a flood-prone location has a greater chance of costly damage, so the insurer faces a higher risk of paying a claim. Insurers generally account for that increased risk with higher premiums. Choice A correctly says the flood risk is likely to make Sally’s premium higher than that of comparable homes not on the waterfront.
AI-written and checked against the verified answer.