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Can the insurance company expect to make a profit and why?There is a .9986 probability...

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surfer3 | Valedictorian

Posted May 25, 2012 at 3:05 AM via web

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Can the insurance company expect to make a profit and why?

There is a .9986 probability that a randomly selected 30 year old male lives through the year, A 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 out $100,000.

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted May 25, 2012 at 3:53 AM (Answer #1)

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There is a 0.9986 probability that a randomly selected 30 year old male lives through the year. The life insurance company charges $161 for insuring the person's life for one year. If the person does not survive the year the policy pays out $100,000.

The amount paid out by the insurance company is 0*0.9986 + 100000*(1 - 0.9986) = $140

The amount received by the company is $161.

161 - 140 = $21

This gives a net profit of $21 that is made by the insurance company.

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