Question

Lucy Ramirez has $22,500 in income. After a recent trip to Cuba, she discovers that there is a 25% chance of acquiring Cubanitis. The disease is 100% curable but requires the Fidelonomy procedure (at a cost of $12,500). The Kuba-Kuba Insurance Company offers a policy that will cover the Fidelonomy. The premium they charge is $4,000. Of this premium, the pure premium is __________ and the loading fee is _______.

Answer 1

$3125, $875

Step-by-step explanation:

Pure Premium = Losses / exposure units

Here loss= $12500 ( medical cost ) and exposure units is 4 ( 25% chance of acquiring the disease)

so, 12500/4 = $3125

since , the total premium is given = $4000

Load = 4000- 3125 = 875