Question

an insurance company will sell ₱500,000.00 one-year term leg insurance policy for ramp models for a premium of ₱1,000.00. find the expected value to the company of a single policy if a model has 99.97% chance of being uninsured in one year? ​

Answer 1

Given  : an insurance company will sell ₱500,000.00 one-year term leg insurance policy for ramp models for a premium of ₱1,000.00.

To find  : the expected value to the company of a single policy if a model has 99.97% chance of being uninsured in one year ​

Solution:

Assume that X is the value to paid  then  1000 - E(X)  will be the expected Value o the company of a single policy

X                   P(X)                                    X P(X)      

0                    99.97 % = 0.9997             0

500,000        1 - 0.9997 = 0.0003         150

                                              ∑X P(X)     150

E(X) = ∑X P(X)   =   150

1000 - E(X)    = 1000 - 150   =  850

the expected value to the company of a single policy  =₱  850

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