The decision to purchase insurance is justified if the cost of the contract is less than the expected loss.

Question

Quizplus · Accepted Answer

This statement is based on the concept of expected value. The expected value of an insurance contract is the probability of a loss multiplied by the amount of that loss, minus the cost of the insurance premium. If the cost of the premium is less than the expected loss, then the decision to purchase insurance is justified as it provides a financial benefit in case of a loss.

The Decision to Purchase Insurance Is Justified If the Cost