Question

A 40-year-old man in the U.S. has a 0.246% risk of dying during the next year . An insurance company charges $250 per year for a life-insurance policy that pays a $100,000 death benefit. What is the expected value for the person buying the insurance

Answer 1

The expected value for the person buying the insurance is -$4.

Step-by-step explanation:

To calculate the expected value for the person buying the insurance, we need to multiply the probability of each outcome by the corresponding payout and sum them up.

In this case, the probability of dying for a 40-year-old man in the U.S. is 0.246%. So the expected payout would be 0.00246 * $100,000 = $246.

Since the insurance policy costs $250 per year, the expected value for the person buying the insurance would be $246 - $250 = -$4.

Answer 2

Expected value = 3.385

Step-by-step explanation:

If an individual gets to benefit from an insurance policy, he will take insurance policy.

Expected value = (Probability of an event × Pay off for dying) - [(1-Probability of an event) × Pay off for living]

Expected value = (0.246% × $100,000) - [(1-0.246%) × $250]

Expected value = ($246) - [0.99754 × $250]

Expected value = ($246) - [249.385]

Expected value = 3.385