Fair insurance
A)has an expected value for the policy holder of zero.
B)has a positive expected value for the insurance company.
C)has very high insurance premiums.
D)is available only to those who fully insure.

Question

Quizplus · Accepted Answer

Fair insurance, by definition, has an expected value for the policy holder of zero. This means that the premiums paid by the policy holder equal the expected payout by the insurance company. Therefore, the policy holder neither gains nor loses financially from purchasing the insurance. However, the insurance company is still able to make a profit by investing the premiums received from policy holders.

Fair Insurance