Question

A thirty year old man is considering buying a one-year life insurance policy for $500 with a coverage of $150,000. The probability of his living through the year is 0.994. Based ONLY on this information, should the man buy the policy?

Answer 1

Answer:

The man should not buy the policy.

Step-by-step explanation:

A life insurance policy is a contract that pays a sum assured to a policy holder upon death, either immediately or at the end of year of death. The policy holder pays a premium amount in advance to cater for the future benefits (sum assured).

In the scenario presented, the man is 30 years old with a probability of 0.994 of survival with respect to mortality. The high probability of being alive through the year implies that the man is very unlikely to die and thus the probability of receiving the coverage amount is too minimal

Answer 2

Answer: The expected value is $400, so the man should buy the insurance policy.

Step-by-step explanation:

(150,000-500)(.006)-500(.994)=400