Lucy Ramirez has $22,500 in income.After a recent trip to Cuba,she discovers that there is a 25% chance of acquiring Cubanitis.The disease is 100% curable but requires the Fidelonomy procedure (at a cost of $12,500).The Kuba-Kuba Insurance Company offers a policy that will cover the Fidelonomy.The premium they charge is $4,000.Of this premium,the pure premium is __________ and the loading fee is _______.

Question

Quizplus · Accepted Answer

The pure premium is the actuarially fair price (or expected cost),which is equal to $12,500*(0.25)= $3,125.The loading fee is the difference between the full premium and the pure premium,$4,000 - $3,125 = $875.

Lucy Ramirez Has $22,500 in Income