Explanation:
The goal is to find the first year’s breakeven, assuming payouts halfway through the year. The probability of loss in the first year is 0.005038. The breakeven premium factoring a semiannual payout schedule is $3,234.27 [= (0.005038 × 650,000) / 1.0125].
(Book 3, Module 28.1, LO 28.b)
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Question 86
An insurance company wrote a term life policy for a 50-year-old male customer. The annualized interest rate associated with this policy is 2.5% with semiannual compounding, and the insurance company is interested in calculating its breakeven premium for a one-year, $650,000 policy. What is the one-year breakeven, given the partial table below and an assumption that losses would potentially occur halfway through the year?
| Age (Years) | Probability of Death Within One Year | Survival Probability | Life Expectancy |
|---|---|---|---|
| 50 | 0.005038 | 0.92940 | 29.58 |
| 51 | 0.005520 | 0.92472 | 28.73 |
A
$3,234.27.
B
$3,438.15.
C
$6,673.60.
D
$6,891.98.
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