Insurance Exercise

John Forbes, ages 23, has driven his father's car without incident for five years. He lives in Nottingham and contemplates buying his first car. He has obtained tariffs from two insurance companies for comprehensive cover and notices that the car he hopes to buy would be included in Group 4 of Company A and Group 2 of Company B.

Company A: premium rates per annum

London postal Major towns

Group area in UK Rest of UK

£ £ £

1 150 130 100

2 200 160 120

3 250 200 150

4 400 350 250

5 500 400 300

Reductions are successively allowed for:

(a) excluding drivers under 25 5%

(b) accepting excess of £25 per claim 10%

(c) no-claim bonuses: after first year 10%

after 2nd year 25%

after 3rd year 40%

after 4th year 60%

Company B: premium rates per annum

London metropolitan

Group police area Rest of UK

£ £

1 250 200

2 300 250

3 400 350

4 450 400

A surcharge of 20% is added to gross premiums for all sports cars. Subsequently, reductions are successively allowed for:

(a) excluding drivers under 25 10%

(b) accepting excess of £50 any claim 10%

(c) no-claim bonuses: after lst year 10%

after 2nd year 25%

after 3rd year 50%

Which company offers the lowest premium in the first year, assuming advantage is taken of all possible reductions?

Which company offers the lowest premium, after taking advantage of all possible reductions, in the fifth year, assuming John has had four years of no claims?

Explain why the figures are higher for the London area than elsewhere.

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• Corporation Tax