Expected Value: Life Insurance Jim is a 60-year-old Anglo male in reasonably good health. He wants to take out a $50,000 term (i.e., 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 Stales (116th edition). We're living longer now! Up-to-date information can be found in the Actuarial Life Table on the Social Security Administration web site. x= age 60 61 62 63 64 p(death at this age ) 0.01191 0.01292 0.01396 0.01503 0.01613 Jim is applying to Big Rock Insurance Company for his term insurancepolicy.(a) What is the probability that Jim will the in his 60th year? Using this probability and the $50,000 death benefit, what is the expected cost to Big Rock Insurance?(b) 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?(c) Interpretation If Big Rock Insurance wants to make a profit of $700 above the expected total cost paid out for Jim's death, how much should it charge for the policy?(d) Interpretation If Big Rock Insurance Company charges $5000 for the policy, how much profit does the company expect to make?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
| x= age | 60 | 61 | 62 | 63 | 64 |
| p(death at this age ) | 0.01191 | 0.01292 | 0.01396 | 0.01503 | 0.01613 |
Jim is applying to Big Rock Insurance Company for his term insurance
policy.
(a) What is the probability that Jim will the in his 60th year? Using this
probability and the $50,000 death benefit, what is the expected cost to Big Rock Insurance?
(b) 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?
(c) Interpretation If Big Rock Insurance wants to make a profit of $700
above the expected total cost paid out for Jim's death, how much should it charge for the policy?
(d) Interpretation If Big Rock Insurance Company charges $5000 for the
policy, how much profit does the company expect to make?
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