Assume that a single insurance plan covers 2,000 low-risk people and 1,000 high-risk ones, all of whom pay the same premium, at which the insurer breaks even.If the average claim submitted by low-risk people is $100 while that submitted by high-risk people was $1,000, what would be the net benefit to a low-risk person from holding a policy?

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Quizplus · Accepted Answer

The premium is set to break even, so the total claims equal total premiums. The average claim is $400, so the premium is $400. A low-risk person pays $400 but only claims $100, resulting in a net loss of $300.

Assume That a Single Insurance Plan Covers 2,000 Low-Risk People