A one-year insurance policy pays $10822 if the policyholder dies within one year. The premium paid by the policyholder is $351, and the probability of death within that year is 0.006. What is the expected gain of the policy for the insurance company?

1 Answer
Apr 13, 2018

The expected gain is #$286.07#.


The expected gain for the insurance company is the revenue for the policy minus the cost for the policy

The revenue for the policy is $351.

The cost for the policy is the expected value of the benefit of the policy.

The expected value of the policy is the amount that the policy pays times the probability of paying.


expected gain = revenue #-# payout #xx# probability of payout