Question

According to the tables used by insurance companies, a 48-year old man has a 0.169% chance of

passing away during the coming year. An insurance company charges $217 for a life insurance policy
that pays a $100,000 death benefit.
What is the expected value for the person buying the insurance?

Answer 1

The expected value for the person buying the insurance is of -$48.

Explanation:

Expected value:

0.169% = 0.00169 probability of earning the death benefit of $100,000, subtracting 217, 100000 - 217 = $99,783.

100 - 0.169 = 99.831% = 0.99831 probability of losing $217.

What is the expected value for the person buying the insurance?

`E = 0.00169*99783 - 0.99831*217 = -48`

The expected value for the person buying the insurance is of -$48.