Question

From the perspective of a 21-year-old male (or his estate), what are the values of the two different outcomes?

i. The value if he lives is
a. $50,000
b. $0
c. $250
d. -$250

Answer 1

The value if he lives is $50,000 (option A)

Step-by-step explanation:

The value assigned to the outcome of living is $50,000, marked as option a. This implies that, from the perspective of the 21-year-old male or his estate, there is a positive monetary value associated with the scenario in which he continues to live. This could represent potential earnings, quality of life, or other financial considerations that contribute positively to his well-being.

Assigning a specific monetary value to the outcome of living suggests a quantitative assessment of the benefits or gains associated with continued life. The amount of $50,000 may represent a variety of factors, such as expected future income, potential opportunities, or the perceived value of life itself. It's crucial to recognize that the assigned value reflects a financial dimension and may not encompass the entirety of the individual's well-being or the emotional and non-monetary aspects of life.

In making decisions or assessments involving such values, it's essential to consider the broader context and potential intangible factors that contribute to the overall well-being and happiness of the individual. While a monetary value can be assigned for practical purposes, the comprehensive assessment of life's value often extends beyond financial considerations, encompassing personal fulfillment, relationships, and a sense of purpose.

Answer 2

The actuarially fair premium for the group with a family history of cancer and the group without history of cancer can be calculated. If the insurance company charges the actuarially fair premium to the group as a whole, it may face financial instability.

Step-by-step explanation:

The actuarially fair premium for each group can be calculated by multiplying the probability of dying in the next year by the payout amount and then summing the results for each group.

For the group with a family history of cancer, 20% of 1,000 men have a one in 50 chance of dying in the next year, so the value is:

0.2 * 1000 * (1/50) * 100,000 = $4,000

For the group without a family history of cancer, 80% of 1,000 men have a one in 200 chance of dying in the next year, so the value is:

0.8 * 1000 * (1/200) * 100,000 = $4,000

If the insurance company cannot find out about family cancer histories and wants to offer life insurance to the entire group, the actuarially fair premium for the group as a whole would be:

1,000 * (1/125) * 100,000 = $8,000

If the insurance company tries to charge the actuarially fair premium to the group as a whole rather than to each group separately, it may face financial instability as the premium may not be enough to cover the potential payouts for the higher risk group.