Question: It would be quite risky for you to insure the life of a 21-year-old friend under the terms of above question. There is a high probability that your friend would live and you would gain $1,250 in premiums. But if he were to die, you would lose almost $100,000. Explain carefully why selling insurance is not risky for an insurance company that insure many thousands of 21-year-old men?
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Age of Death
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21
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22
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23
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24
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25
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>26
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Earnings X
Probability
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($99,750)
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($99,550)
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($99,250)
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($99,000)
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($98,750)
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$1,250
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0.00183
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0.00186
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0.00189
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0.00191
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0.00193
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?
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