Question

A 65-year-old woman takes out a $10,000 term life insurance policy. The company charges an annual premium of $500. Estimate the company’s expected profit on such policies if mortality tables indicate that only 2.6% of women age 65 die within a year.

Answer 1

$240

Step-by-step explanation:

Given:

Policy Amount = $10,000

Annual premium = $500

Average mortality table rate(65 year women die in a year) = 2.6%

Note:

Policy amount noted as payment for company.

Expected Profit on Policy = Annual Premium Amount - ( Policy amount x Average mortality table rate)

= $500 - ($10,000 x 2.6%)

= $500 - $260

= $240

Companies expected Profit is $240.