Calculate the premium that the insurance company should charge for a policy to break even.

MATLAB: An Introduction with Applications
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ISBN:9781119256830
Author:Amos Gilat
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**Determining Insurance Premiums: A Break-Even Analysis**

**Scenario:**

A customer holds a home insurance policy for a property valued at $200,000. The likelihood of the property being completely destroyed by fire is 0.1%, while there is a 0.5% chance that the property will incur a 50% loss due to fire. In this analysis, other partial losses are not considered. The insurance company's objective is to determine the premium needed for the policy to break even.

**Objective:**

Calculate the insurance premium required for the policy to break even.

**Variable Definition:**

\( X \) = the amount of compensation paid to the customer.

**Approach:**

Leverage the probability distribution table to ascertain the sample space for the random variable \( X \).

**Hint:**

Use the probability distribution table that has been created to find the outcomes and probabilities associated with \( X \). This helps in calculating the expected compensation, allowing the determination of the break-even premium.
Transcribed Image Text:**Determining Insurance Premiums: A Break-Even Analysis** **Scenario:** A customer holds a home insurance policy for a property valued at $200,000. The likelihood of the property being completely destroyed by fire is 0.1%, while there is a 0.5% chance that the property will incur a 50% loss due to fire. In this analysis, other partial losses are not considered. The insurance company's objective is to determine the premium needed for the policy to break even. **Objective:** Calculate the insurance premium required for the policy to break even. **Variable Definition:** \( X \) = the amount of compensation paid to the customer. **Approach:** Leverage the probability distribution table to ascertain the sample space for the random variable \( X \). **Hint:** Use the probability distribution table that has been created to find the outcomes and probabilities associated with \( X \). This helps in calculating the expected compensation, allowing the determination of the break-even premium.
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