A forty-five year old woman is considering buying a one-year life insurance policy for $620 with a coverage of $200,000. Suppose the probability for a woman of that age living through the year is 99.75%Based ONLY on this information, should the woman buy the insurance policy?

Answer 1

In this case, the expected value of the insurance policy can be calculated by multiplying the cost of the policy by the probability of the woman not living through the year:

Expected value = $620 * (1 - 0.9975) = $620 * 0.0025 = $1.55

Therefore, the expected value of the insurance policy is $1.55. Since the expected value is significantly lower than the cost of the policy, it may not be worth it for the woman to purchase the insurance policy.