Question

Which of the following best represents the annual insurance premium that a company might charge for $100,000 of life insurance on a man with a 1 in 100 chance of dying in the year. Assume the insurance company wants to make a 20% margin on the policy? a) $100 b) $1,200 c) $100,000 d) $120,000

Answer 1

1200

Explanation:

Answer 2

Option b) $1200

Explanation:

Amount that the policy will cover under life insurance = $100,000

Chance of dying of any man in a year = 1 in a 100

= (1/100) X 100 %

= 1%

So the annual insurance premium that the company should charge = 1% of the policy amount + 20 % margin on annual premium = 1% of 100,000 + 20 % of (1% of 100,000 ) = 1,000 + 20% of 1,000 = 1,000 + 200 = 1200

Therefore the Company should charge $1200 for the insurance policy so as to make a 20% margin on the policy.

Hope it helps.

Thank you..!!