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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

Sagot :

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:

[tex]0.99813x - 0.00187(1000000) = 0[/tex]

[tex]0.99813x = 0.00187(1000000)[/tex]

[tex]x = \frac{0.00187(1000000)}{0.99813}[/tex]

[tex]x = 1873.5[/tex]

The insurance company should charge $1,873.5.

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