An auto insurance company insures an automobile worth 15,000 for one year under a policy with a 1,000 deductible. During the policy year there is a 0.04 chance of partial damage to the car and a 0.02 chance of a total loss of the car. If there is partial damage to the car, the amount X of damage (in thousands) follows a distribution with density function
What is the expected claim payment?
- 328 Correct Answer
Let Y denote the claim payment made by the insurance company.
It follows that the expected claim payment is 328.