Question

Provide an appropriate response. A 28-year-old man pays $94 for a one-year life insurance policy with coverage of $120,000. If the probability that he will live through the year is 0.9991, what is the expected value for the insurance policy

Answer 1

$ 14.08

Explanation:

We have that the policy costs $ 94 and with life insurance with coverage of $ 120,000, to calculate the expected value, we must subtract the value of that life insurance multiplied with the probability of dying (complement of the probability of living) and the policy value multiplied by the probability of staying alive) like this:

120000 * (1 - 0.9991) - 94 * 0.9991 = 14.0846

Which means that the expected value of the policy is $ 14.08