Average spending is $2,560. Those with a family history of cancer (4% of the pop

Question

Average spending is $2,560. Those with a family history of cancer (4% of the population) spend $40,000 on average, and those with no family history (96% of the population) spend $1,000. Which of the following statements are true?

You buy insurance becaue it protects you from the risk of high spending

You buy coverage because your expected los is larger than the premium

You don't buy coverage becaue yoiur expected loss is smaller than the premium

You are indifferent because your expected losss is $2,560

Explanation / Answer

The answer is: You are indifferent because your expected loss is $ 2,560. But at the same time, you might buy Insurance to protect yourself from the risk of High Spending.

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