Question

The probability that a 38-year-old white male will live another year is .99813. What premium would an insurance company charge to break even on a one-year $1 million term life insurance policy

Answer 1

The insurance company should charge $1,873.5.

Explanation:

Expected earnings:

1 - 0.99813 = 0.00187 probability of the company losing $1 million(if the client dies).

0.99813 probability of the company earning x(price of the insurance).

What premium would an insurance company charge to break even on a one-year $1 million term life insurance policy?

Break even means that the earnings are 0, so:

`0.99813x - 0.00187(1000000) = 0`

`0.99813x = 0.00187(1000000)`

`x = (0.00187(1000000))/(0.99813)`

`x = 1873.5`

The insurance company should charge $1,873.5.