The probability that a 30-year old white male will live another year is .99842. What premium would
an insurance company charge to break even on a 1-year $1 million dollar term life insurance policy?
2 answers
What is wrong with $1M (1-.99842) ?
A life insurance company sells a term insurance policy to a 21-year-old male that pays $100,000 if the insured dies within the next 5 years. The probability that a randomly chosen male will die each year can be found in mortality tables. The company collects a premium of $250 each year as payment for the insurance. The amount X that the company earns on this policy is $250 per year, less the $100,000 that it must pay if the insured dies. Here is the distribution of X. Fill in the missing probability in the table and calculate the mean profit μX
3 answers