
Advanced Statistics Advanced Probability and Statistics Math Forum 
 LinkBack  Thread Tools  Display Modes 
December 31st, 2013, 07:18 AM  #1 
Newbie Joined: Dec 2013 Posts: 1 Thanks: 0  Insurance Policy Problem
Hi, I just encountered this question today and I cannot solve it. The question is: Suppose the premium of a home insurance policy is $200 and in case of a fire the insurance company will pay out $200,000. Let X denotes the profit(or loss) of such a policy. X is a random variable. The expected value of X depends on a probability of a fire, p=0.0002. If an insurance agent wants to sell such policy to you, will you buy the policy? why? I really do not know how to proceed this question. This is the last part of the question and i already solved the previous parts. Thank you very much 
December 31st, 2013, 09:34 AM  #2 
Senior Member Joined: Oct 2013 From: New York, USA Posts: 638 Thanks: 85  Re: Insurance Policy Problem
Converting it to fraction, the probability of a fire = 1/5000. Therefore if 5,000 policies are sold, the insurance company will collect $1,000,000 (1 million) and pay out $200,000 for an insurance company profit of $800,000, which is $160 per policy. Based on the probability of a fire, a policy should cost $40 and you should not buy the policy in question.

December 31st, 2013, 10:10 AM  #3  
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,342 Thanks: 1024  Re: Insurance Policy Problem Quote:
 

Tags 
insurance, policy, problem 
Search tags for this page 
sample math problem buying an insurance policy,insurance company policies statistics problems,insurance policy math problems
Click on a term to search for related topics.

Thread Tools  
Display Modes  

Similar Threads  
Thread  Thread Starter  Forum  Replies  Last Post 
Probability Problem / Insurance problem  bsjmath  Advanced Statistics  2  March 1st, 2014 02:50 PM 
Probability Question  auto insurance  aaronmath  Probability and Statistics  2  September 11th, 2012 11:33 AM 
A policy will never lose  Albert.Teng  Algebra  30  July 30th, 2012 07:26 AM 
How to divide insurance payout fairly  thirst4answer  Economics  60  July 8th, 2012 07:20 AM 
Whole life insurance problem  aga  Economics  1  July 6th, 2010 06:01 AM 