Suppose a life insurance company sells a $200000 one-year term life insurance policy to a 21-year-old female for $230. The probability that the female survives the year is 0.999554. Compute and interpret the expected value of this policy to the insurance company.

The expected value would be the subtraction between the value that she originally paid for the probability that she can live that year and the value of the insurance (subtracting what she paid) for the probability that she will lose her life.

Value of the insurance policy: $ 230

Value in case of death: $ 200,000 - $ 230 = $ 199,770

Probability of living: 0.999554

Probability of dying: 1 - 0.999554 = 0.000446

Replacing we have:

$ 230 * 0.999554 - $ 199,770 * 0.000446

= $ 229.80

Suppose a life insurance company sells a ​$200000 ​one-year term life insurance policy to a 21​-year-old female for ​$230. The probability that the female survives the year is 0.999554. Compute and interpret the expected value of this policy to the insurance company.

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Suppose a life insurance company sells a $200000 one-year term life insurance policy to a 21-year-old female for $230. The probability that the female survives the year is 0.999554. Compute and interpret the expected value of this policy to the insurance company.