1. A location’s risks can make a difference in premium costs. Think about two houses, one built on a mesa (a high desert plateau) in Arizona and the other built on the Louisiana coast (below sea level). Which location is more likely to experience flooding? Which house would have lower premiums for flood insurance?

House with lower premiums for flood insurance -- house built on Mesa in Arizona.

Location more likely to experience flooding --- Louisiana coast which is below sea level.

Explanation:

Insurances provides a protection in exchange for a amount of fee known as a premium. An insurance is a policy or an agreement where the person availing the policy gets a financial protection against the calamities or losses that occurs to the person as promised by the other party. But for that the person needs to a pay a fee called as the premium to the other party.

In the context, the house which is built on the mesa, which is a high desert plateau in Arizona is less prone to floods. Since the location of the house is in a high altitude place, it is less likely to experience floods as compared to the other place in Louisiana coast which is below sea level and is more likely to experience flooding because of its location near the coast and elevation.

Therefore, the house located in Arizona will have to pay lower premiums for flood as there will be less likely to occur flood in the region of the high elevation of the place.

And since house built on Louisiana coast is below sea level, it will more likely to experience floods.

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