Question

A 37-year old individual purchases a life insurance policy of $95,000 for an annual payment of $250. based on a insurance report, the probability that an individual is in a life threatening accident this year and survives is 0.999063. find the expected value of the policy for the insurance compan

Answer 1

Answer:Expected value = - 94661.45

Explanation:

The Policy pay out is $95000 ,if a client is in life threatening accident insurance company will loose $95000, if the client is not in a life threatening accident the insurance company will gain $250

Probability (Client is in a threatening accident) = 0.999063

Probability (not in a life threatening accident)= 1 - 0.999063 = 0000937

Insurance Premium = $250

Insurance Payout = $95000

expected value = 0.999063 x (- (95000 - 250)) + 0.000937 x (250)

expected value = 0.999063 x (-94750) + 0.000937 x (250)

expected value = - 94661.21925 + 0.23425 = - 94661.44675

expected value = - 94661.45

Answer 2

Answer:

$160.75

Explanation:

the expected value of the policy will = (premium x probability of surviving) - (policy benefits x probability of dying)

the probability of surviving = 0.999063

the probability of dying = 0.000937

policy's expected value = ($250 x 0.999063) - ($95,000 x 0.000937) = $249.77 - $89.02 = $160.75