Question

Jim has a 5-year-old car in reasonably good condition. He wants to take out a $20,000 term (that is, accident benefit) car insurance policy until the car is 10 years old. Assume that the probability of a car having an accident in the year in which it isx years old is as follows:

x = age	5	6	7	8	9
P(accident)	0.01182	0.01282	0.01386	0.01602	0.01513

Jim is applying to a car insurance company for his term insurance policy. What would be the total expected loss to the insurance company over the years 5 through 9? Round your answer to the nearest dollar.

Answer 1

the expected loss in first year =20000*0.01182=236.4$

Second year =20000*0.01282=256.4$

Third year =20000*0.01386=277.2$

Fourth year=20000*0.01602=320.4$

Fifth year=20000*0.01513=302.6$

Total expected loss=236.4+256.4+277.2+320.4+302.6=1393$