Question

The cost of health insurance is $1,200 per year. The cost of an operation for a dramatic injury is $500,000. The chances of someone needing such an operation are 47.3% over a twenty year period. From a purely financial point of view, are you better off taking out the insurance or not? Choose the best answer.

Question options: No. The insurance company must make a profit.

Yes. The cost of the insurance is less than the probability cost of the operation

No. The probality of needing the operation is less than 50%.

Yes. Buying insurance is always a good idea.

Answer 1

yes. The cost of the insurance is less than the probability cost of the operation

Explanation:

yes. The cost of the insurance is less than the probability cost of the operation

The cost of health insurance = $1200

Cost of dramatic injury operation= $500,000

chances of need of operation= 47.3% over a 20 years period

the amount of pay insurance after 20 years=
`20* 1200= 240,00`

probable of cost operation= 0.473*500,00= $236,500

clearly the cost of insurance is less than the probable cost of operation.