Consider an insurance company offer a "standard contract" with the premium r-$100 and payout q-$500 to anyone who will purchase it. Peter has healthy-state income In- $500 and sick-state income Is $0. He has probability of illnessp-0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be? (please show all your calculations)
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- What type of insurance plan does this insured hold ? O. Health Maintenance Organization O. Preferred Provider Organization O. Physician Hospital Organization O. Exclusive Provider Organization(80) purchases a whole life insurance policy of 100,000 payable at the end of the year of death. You are given: I. The policy is priced with a select period of one year. II The select mortality rate equals 80% of the mortality rate from the Standard Ultimate Life Table. III Ultimate mortality follows the Standard Ultimate Life Table. i=0.05 Calculate the actuarial present value of the death benefits for this insurance. A.58,950 B.59,050 C.59,150 D.59,250 E.59,350A9 Describe an example of adverse selection that we may run into in the real world. How does adverse selection impact the policy holders for this specific type of insurance for: High risk participants? Low risk participants? What is one government regulation that has been enacted in the last 20 years that helps either high risk or low risk policy holders in the United States
- An individual has 40,000 in income per year. The person will get sick with probability 0.1. If he does get sick, the medical bills will total 30,000. The following tables shows the utility derived from certain amounts of income: Income Utility40,000 20037,000 19535,000 19030,000 17020,000 14010,000 100Considering the probability of illness, what is the expected utility of income without insurance? Show your work.for remain uninsured? S. Amanda has a utility of money function of u(w)-w4, Her initial wealth is w-$20,000 and she faces a .10 probability of a loss L $5,000; with probability 9 she suffers no loss. Calculate the amount of insurance Amanda will purchase if $1 of coverage costs $.10 per dollar of coverage. Would purchase any insurance if the cost per dollar of coverage was $.20.NO CHATGPT. In the US, private health insurance is usually purchased by groups rather than individuals. For example, most people are insured through their employer or their spouse’s employer. Which type of distortion does the insurance company need to worry about with individuals purchasing insurance versus groups? Why is group insurance preferable for the employer? Why is this preferable for the individual?
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- Nathan's income in a typical year is 75,000. There is a 10 percent chance that Nathan will be seriously ill next year, incurring 15,000 in medical expenses. Samantha also earns 75,000 in a typical year. Her chance of becoming seriously ill next year and incurring ur 15,000 in medical expenses is 20 percent. a. Calculate the actuarially fair premium for full insurance for (i) Nathan and (ii) Samantha. b. Suppose that a private insurance firm cannot distinguish between Nathan and Samantha in terms of their risk and assumes the risk of being seriously ill in the general population is 10%. In this context, discuss the adverse selection problem the firm might face. c. Can a compulsory, government - run health insurance program avoid the problem of adverse selection? Explain why or why not.ease use utility of wealth function in the booK, 8-1 (see below). Certainty Utility B D 200 198 194 D' Total utility 170 of wealth C' Expected Utility A 140 10,000 15,000 19,000 20,000 Wealth FIGURE 8-1 Total Utility of Wealth and the Impact of Insurance Please explain the difference between the certainty utility line and the expected utility line b. Calculate your E(U), given an 80% change of being healthy and 20% of being sick, knowing that your income falls to $10,000 and your utility is 140 if you get sick. Calculate your E(W), given an 80% change of being healthy and 20% of being sick. d. Given that your Certainty Utility Function is U = 200Y-0.00154 and Y is your income, what is your Certainty Utility with insurance (if you are risk averse) What insurance premium will you pay to guarantee a utility of 197? Please provide a calculation.H applied for a individual major medical policy. When H filed a claim within the first year of coverage and the underwriter noticed that the H's age on the claim form was different than what was listed on the application. The insurer will take which of the following actions regarding H's claim? A: Deny the claim and refund premiums B: Deny the claim, cancel the policy and keep all premiums C: Pay the claim in full and keep the policy as is D: Adjust the claim benefit amount to the insured's correct age