Question

a 28 year old man pays $181 for a one year life insurance policy with civerage of $150,000. If the probability that he will leive through a year is .9994, what is the expected value for the insurance policy?

Answer 1

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Answer 2

The company earns $91 through the year.

Explanation:

We are given the following information in the question:

Here, the insurance premium paid is $181.

The probability of survival = 0.9994.

The probability of death = 1 - Probability of survival = 1 - 0.9994 = 0.0006

Thus, we can write,

The company earns $181 with probability 0.9994 and pays out ($150000-$181) = $149,819 with probability .006.

The expected value of the policy or the expected earning for the company can be calculated in the following manner:

`\text{Expected value of insurance} = \\(181 * 0.9994) +((-149819) * 0.0006) = 91`

Thus, the company earns $91 through the year.