You have $1,000,000 worth of equipment at the job site and wish to minimize your risk of direct property damage by taking out an insurance policy. The insurance company provides you with its statistical data as shown below:
|
Type of Damage
|
Probability (%)
|
Amount of Damage (Loss) (%)
|
|
Total
|
0.02
|
100
|
|
Medium
|
0.08
|
40
|
|
Low
|
0.10
|
20
|
|
No Damage
|
99.8
|
0
|
If the insurance company uses expected value to calculate premiums, how much would you expect the premium to be, assuming the insurance company adds on $300 for handling and profit? What is the value of this policy to your organization?