Question

A man purchased a $23,000, 1-year term-life insurance policy for $425. Assuming that the probability that he will live for another year is 0.982, find the company's expected net gain.

Answer 1

Given:

Insurance amount = $23000

Policy cost = $425

Probability of living = 0.982

To find:

The expected net gain of the company

Solution:

The expected net gain of the company can be calculated by the following steps,

$\text{Expected pay-out = Insured amount } \times (1-\text{ Probability})\\\\\Rightarrow\ 23000\times(1-0.982)\rightarrow\ 23000\times0.018\rightarrow\ 414$

The company's expected gain would be $\ 425-\ 414=\ 11$

Therefore, the company's expected gain is $11.