Question

Using this probability and the $50,000 death benefit, what is the expected cost to Big Rock Insurance (in dollars)

Answer 1

The question is incomplete. The complete question is :

Jim is a 60 year old male in reasonably good health. He wants to take out a $50,000 term (i.e. straight death benefit) life insurance policy until he is 65. The policy will expire on his 65th birthday. The probability of death in a given years is provided by the Vital Statistics Section of the Statistical Abstract of the United States.

x = age               60                 61                      62                 63                    64

P(age death)    0.01191       0.01292             0.01396         0.01503          0.01613

Jim is applying to Big Insurance Company for her term insurance policy. What is the probability that Jim will die in his 60th year? Using this probability and the $, death benefit, what is the expected cost to Big Rock Insurance.

Solution :

It is given that Jim, a 60 year old man wishes to take out the $50,000 life insurance policy until he turns 65 years of age when the policy will expire. So Jim apply to the insurance company, Big Rock Insurance for her insurance policy.

Now the death probability at a particular age is provided in the table above. According to the data provided in the table, the probability shows that Jim will die in the 60th year is 0.01191.

The expected cost to the Big Rock Insurance using this probability and $50,000 term insurance is given by :

Expected Cost $= 0.01191 \times 50000$

                         = 595.50

∴ Expected cost = $ 595.50