Question

Payout on Insurance Policies An insurance company has written 100 policies for $\$ 100,000,500$ policies for $\$ 50,000$ , and 1000 policies for $\$ 10,000$ for people of age $20 .$ If experience shows that the probability that a person will die at age 20 is 0.0012, how much can the company expect to pay out during the year the policies were written?

Name: Problem 31, Chapter 8: Finite Mathematics and Calculus with Applications
Uploaded: 2020-05-22T02:51:35-08:00
Duration: 1 min 36 s
Channel: Ernest Castorena
Description: Payout on Insurance Policies An insurance company has written 100 policies for 100,000,500 policies for 50,000 , and 1000 policies for 10,000 for people of age 20 . If experience shows that the probability that a person will die at age 20 is 0.0012, how much can the company expect to pay out during the year the policies were written?

   Payout on Insurance Policies An insurance company has written 100 policies for $\$ 100,000,500$ policies for $\$ 50,000$ , and 1000 policies for $\$ 10,000$ for people of age $20 .$ If experience shows that the probability that a person will die at age 20 is 0.0012, how much can the company expect to pay out during the year the policies were written?

Finite Mathematics and Calculus with Applications

Margaret L. Lial,… 9th Edition

Chapter 8, Problem 31

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Solved by Expert Ernest Castorena

05/22/2020

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The expected payout is the product of the policy value and the probability of a person dying at age 20. Show more…

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Payout on Insurance Policies An insurance company has written 100 policies for $\$ 100,000,500$ policies for $\$ 50,000$ , and 1000 policies for $\$ 10,000$ for people of age $20 .$ If experience shows that the probability that a person will die at age 20 is 0.0012, how much can the company expect to pay out during the year the policies were written?

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Key Concepts

Risk Aggregation

Risk aggregation involves summing the expected outcomes across multiple policies or risk categories. In this context, it means calculating the expected payout for each type of policy based on its amount and frequency, then adding these together to get the total expected payout.

Probability in Insurance

Probability is used to assess the chance of an insured event occurring, such as a claim being made. Insurers rely on probabilistic models and historical data to estimate these probabilities, which are crucial for setting premiums and determining risk levels.

Expected Value

Expected value is a central concept in probability that calculates the average outcome of a random event. In insurance, it is used to estimate the average payout by multiplying the probability of a claim by the claim amount for each policy and then aggregating these amounts over all policies.

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