Question

It is estimated that there are 32 deaths for every 10 million people who use airplanes. A company that sells flight insurance provides $100,000 in case of death in a plane crash. A policy can be purchased for $1. How much can the insurance company expect to make over the long run for each policy that it sells?

Answer 1

Expected profit = Revenue - Claim Payments

Answer 2

Revenue = How many people buy it * Price they pay

Claim payments = how many people die * how much the company pays

Answer 3

Now if you need an expected profit per policy, divide that expected profit by the 10million

Answer 4

so is it 6.8 million then?

Answer 5

On a side note, that death ratio makes it sound like people die of heart attacks rather than plane crashes. xd

Answer 6

6.8 million overall profit yes. Profit per policy would be $0.68

Answer 7

cool, thanks