In: Statistics and Probability
Jim is a 60-year-old male in reasonably good health. He wants
to take out a $75,000...
- Jim is a 60-year-old male in reasonably good health. He wants
to take out a $75,000 term (that is, straight death benefit) life
insurance policy until he is 65. The policy will expire on his 65th
birthday. The probability of death in a given year is provided by
the Vital Statistics Section of the Statistical Abstract of the
United States (116th edition)
X=age
|
60
|
61
|
62
|
63
|
64
|
P(death at this age)
|
0.01091
|
0.01192
|
0.01296
|
0.01403
|
0.01513
|
Jim is applying to Big Rock Insurance
Company for his term insurance policy.
- What is the probability that Jim will die in his 60th year?
Using this probability and the $75,000 death benefit, what is the
expected cost to Big Rock Insurance?
- Repeat part (a) for years 61, 62, 63, and 64. What would be the
total expected cost to Big Rock Insurance over the years
60 through 64?
- If Big Rock Insurance wants to make a profit of $850 above the
expected total cost paid out for Jim’s death, how much should it
charge for the policy?
- If Big Rock Insurance Company charges $6500 for the policy, how
much profit does the company expect to make?