Final answer:
The student's question involves a group Accidental Death and Dismemberment policy with double indemnity for deaths in a commercial airplane crash. Examples involving automobile insurance premiums and life insurance for groups based on risk illustrate the fundamental principle of pooling risk and calculating insurance rates.
Step-by-step explanation:
The question asked pertains to an Accidental Death and Dismemberment (AD&D) policy, which is a type of insurance. AD&D policies provide a benefit if the insured person dies or suffers a dismemberment due to an accident. In the scenario presented, if the insured individual dies in a commercial airplane crash, the policy will pay double the indemnity, meaning the benefit would be $200,000 instead of the base $100,000.
The example provided about automobile insurance is related in context because it similarly demonstrates how insurance works—premiums are paid by a group which collectively covers the costs of the incidents or claims. If each of the 100 drivers pays a $1,860 premium annually, the collective amount of $186,000 covers the damages from accidents within that group. This example illustrates the principle of pooling risk, which is fundamental to the insurance industry.
Lastly, the example with 50-year-old men and their life insurance policies ties into the idea of calculating risk and premium costs based on statistical probabilities, which is also intrinsic to setting rates for AD&D policies like the one described initially.