To calculate the insurance company's expectation, we need to determine the expected value of the policy.
The company expects to receive $295 from selling the policy, irrespective of whether the person dies or not.
The probability of the person dying within one year is given as 0.00044.
If the person dies, the insurance company will have to pay out $30,000.
Therefore, the expected value for the insurance company can be calculated as:
(Probability of dying * Amount paid out) - (Probability of not dying * Amount received from selling the policy)
= (0.00044 * $30,000) - (0.99956 * $295)
= $13.2 - $294.0682
= -$280.8682
The company's expectation is -$280.8682, indicating that on average, they are expected to lose $280.8682 per policy sold.
The probability that a 22-year-old female in the U.S. will die within one year is approximately 0.00044. If an insurance company sells a one-year, $30,000 life insurance policy to such a person for $295, what is the company's expectation?
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