A life insurance company sells a $250,000 1-year term life insurance policy to a

Question

A life insurance company sells a $250,000 1-year term life insurance policy to a 20-year-old female for $200. According to the National Vital Statistics Report the probability that the female survives the year is 0.999544. Compute and interpret the expected value of this policy to the insurance company. There is 0.9868 probability that a randomly selected 30-year-old male lives through the year. A Fidelity life insurance company charges $161 for insuring that the male will live through the year. If the male does not survive the year, the policy pays our $100,000 as a death benefit. If a 30-year-old male purchases the policy, what is his expected value?

Explanation / Answer

2)expected value=premium*probabilty she lives -payout*she died =200*0.999544-250000*(1-0.999544)=$85.91

3)for male expected value =payout*he died with in year-premium*probability he lives

=(1-0.9868)*100000-0.9868*161=$1161.13

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