You own a house worth $800,000 that is located on a river bank. If the river floods moderately, the house will be completely destroyed. This happens about once every 50 years. If you build a seawall, the river would have to flood heavily to destroy your house, which only happens about once every 200 years. What would be the annual premium for a flood insurance policy that offers full insurance?

For a policy that pays only 70% of the home value, what are your expected costs with and without a seawall?

Do the different policies provide an incentive to be safer (i.e., to build the seawall)?