Question

Explain why the company suffers a loss of $98,750 on such a policy if a client dies at age 25

Answer 1

If a client prematurely dies at age 25, then the company will suffer a loss of $98,750, which is the estimated amount of company income that the aforementioned client would have paid in order to keep the policy active and in good standing.

Answer 2

Because due to the low probability of death of a person of 25 years, the annual quota of the life insurance is calculated in $ 250, the insurance is for $100,000 and assuming that the insurance was sold when the client was 21 years old, made 5  payments of $250, then, $100,000 less $1250 of the 5 payments: $ 98,750, which is the amount that the insurance company loses.