Question

The probability that a 38-year-old white male will live another year is .99813. What premium would an insurance company charge to break even on a one-year $1 million term life insurance policy

Answer 1

Answer:

The insurance company should charge $1,873.5.

Step-by-step explanation:

Expected earnings:

1 - 0.99813 = 0.00187 probability of the company losing $1 million(if the client dies).

0.99813 probability of the company earning x(price of the insurance).

What premium would an insurance company charge to break even on a one-year $1 million term life insurance policy?

Break even means that the earnings are 0, so:

$0.99813x - 0.00187(1000000) = 0$

$0.99813x = 0.00187(1000000)$

$x = \frac{0.00187(1000000)}{0.99813}$

$x = 1873.5$

The insurance company should charge $1,873.5.