Question

An insurance company has written 52 policies of $50,000, 477 of $25,000, and 918 of $10,000

Answer 1

The amount of money that the company can expect to pay during the year the policies were written is; $25005

How to find the expected Value?

The probability that a person will die at age 20 = 0.001

Revenue from 52 policies = 52 * $75,000 = $3,900,000

Revenue from 477 policies = 477 * $25,000 = $11,925,000

Revenue from 918 policies = 918 * $10,000 = $9,180,000

Total revenue from all policies = $3,900,000 + $11,925,000 + $9,180,000

Total Revenue from all Policies = $25,005,000

Expected amount to pay out during the year the policies were written =  $25,005,000* 0.001 = $25,005

Thus, the company can expect to pay out $45,000 over the year after the policies were written.

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Answer 2

Answer:

The condition must say (but missed to do it) that the policies are effective during one year

and that the probability to die 0.0011 relates to the age from 20 to 21.