SOLUTION: Suppose you buy a life insurance policy that will cost you $500 and your family will collect $100,000 in the event that you die within one year of the date of the purchase of this

Question 1026199: Suppose you buy a life insurance policy that will cost you $500 and your family will collect $100,000 in the event that you die within one year of the date of the purchase of this policy.
Study shows that the probability that you die within one year of the date of the purchase of this policy is 0.2%.
What is your family net earning(x) and Probability of your family net earning?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
you spend 500.

if you do die within the first year, your family's net earnings will be 100,000 - 500 = 99,500.

the probability of this occurring is .002.

that's 1 out of every 500 times, on the average.

the insurance company expects that approximately 1 out of every 500 families will be able to cash in on this bonanza.

so, for every 500 families that they sell this policy to, they will have to pay out 100,000 but they will take in 250,000.

their gross profit is about 150,000 on every 500 families that they sell this policy to.

their net profit will be something less, because they have expenses to take care of just like any other business.

RELATED QUESTIONS
At many airports, a person can buy a $30 insurance policy that eould cover the cost of... (answered by stanbon)

Suppose you set insurance prices for an insurance company. The insured object is a Dutch... (answered by jorel1380)

Suppose you set insurance prices for an insurance company. The insured object is a Dutch... (answered by Theo)

3.A person wants to buy a life insurance policy which would yield a large enough sum of... (answered by ikleyn)

A person wants to buy a life insurance policy which would yield a large enough sum of... (answered by ikleyn)

Suppose a life insurance company sells a $300 comma 000 one-year term life... (answered by ikleyn)

Suppose a life insurance company sells a $190,000 one year term life insurance policy to (answered by Theo)

A 40-year-old man in the U.S. has a 0.24% risk of dying during the next year . An... (answered by ikleyn)

A 40-year-old man in the U.S. has a 0.247% risk of dying during the next year . An... (answered by ikleyn)