Answer:
The answer is: In order for the company to break even on all the $88,000 policies in that area it must charge $528 per yearly policy.
Explanation:
In order to calculate what premium the insurance company should charge in order to break even, we must know how much money the company will have to pay during the year.
Fire insurance policy of $88,000
Possible losses Probability Money paid by company
total loss 0.001 $88,000
50% loss 0.01 $44,000
The company will have to pay $88 ($88,000 x 0.001) for a total loss and $440 ($44,000 x 0.01) for a 50% loss, we add them up and get $528.
In order for the company to break even on all the $88,000 policies in that area it must charge $528 per yearly policy.
