The manager of a life insurance company is trying to decide what annual premium to charge a group of policyholders, each of whom has just received his or her 40th birthday. A check of mortality tables indicates that, for every million persons born 40 years ago, 3percent die, on average, sometime during their 40th year. If the company has 10,000 policyholders in this age bracket and each has taken out a $50,000 life insurance policy, estimate the probable amount of death benefit claims against the company.
How much must be charged in premium from each policyholder just to cover these expected claims?
Suppose the company has operating expenses (plus a target profit) on sales to these policyholders of $500,000. What annual premium must be charged each policyholder to recover expenses and meet expected benefit claims?