Question

Compute the cost of insurance for a $1,000 life insurance policy in a year where the policy’s terminal reserve is $400 and the tabular probability of the insured’s death is 0.004.

Answer 1

Solution :- Cost of insurance = (Life insurance per year - Terminal reserve) / Probability of death of insured person.

= (1000 - 400) / 0.004

= 600 / 0.004

= $ 150000.

Conclusion :- Cost of insurance in the given question = $ 150000.