According to survival probability tables, the probability of a 75 year old male

Question

According to survival probability tables, the probability of a 75 year old male living five or more years is 79%. A 75 year old male decides to buy a life insurance policy that will pay $40,000 in the event that he dies during the next five years. How much should he be willing to pay for this policy? According to survival probability tables, the probability of a 75 year old male living five or more years is 79%. A 75 year old male decides to buy a life insurance policy that will pay $40,000 in the event that he dies during the next five years. How much should he be willing to pay for this policy?

Explanation / Answer

Ans: Survival probability for a 75 years old male for the next 5 or more years=0.79

So,probability that he dies in next 5 or more years=1-0.79=0.21

Now,policy will pay $40,000 if he dies in next 5 years.

So,he should be willing to pay=probability of non-survival after 75 years*cost of policy=0.21*40000=$8400

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