You own a house worth $800,000, situated on the banks of a river. If the river floods moderately, the house will be completely destroyed. This happens about once every 80 years. If you build a seawall, the river would have to flood heavily to destroy your house, and this only happens about once every 400 years. What would be the annual premium for an insurance policy that offers full insurance? For a policy that only pays 80% of the home value? What are your expected costs with and without a seawall? Do the different policies provide an incentive to be safer (that is, to build the seawall)?