Example 1: Dianne is a 25 years old teacher in good health. Reviewing actuarial tables and based on her age, gender and health, her insurance company has proposed that the probability that she will die this year is 0.001.

(a) What is the probability that she will survive the year?

(b) If she buys a $100,000 life insurance policy, what are the two possible values the company may pay? (List then in the x column below.)

(c) Put the correct P(x) value next to your outcomes.

(d) Find the expected value for probability distribution.

(e) If the company charges a $100 service fee, what should be Dianne's annual premium? [Dianne's annual premium is based on the company's expected payout plus the service fee.]