A life insurance company sells policies of S200,000 Determine the expected value

Question

A life insurance company sells policies of S200,000 Determine the expected value of the insurance policy to the company for an adult female who has a survival rate of 99.9% for a given year and who pays the premium of $ 325 per year. Determine the expected value of the insurance policy to the company for an adult male who has a survival rate of 99. 8 for a given year and who pays the premium of $ 550 per year. The company expects to sell 10,000 of each policy (10,000 males and 10,000 females). How much money does the company expect to earn? How many males how many females (out of 10,000) are expected not to survive the year?

Explanation / Answer

7)probability of survival = 0.999

probability of death = 1 -0.999 = 0.001

hence

E(X) = 0.999*325 - 0.001*200000 = 124.675

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