Do The Math Q19

An insurance company issues life insurance policies in three separate categories: standard, preferred, and ultra-preferred. Of the company’s policyholders, 50% are standard, 40% are preferred, and 10% are ultra-preferred. Each standard policyholder has probability 0.010 of dying in the next year, each preferred policyholder has probability 0.005 of dying in the next year, and each ultra-preferred policyholder has probability 0.001 of dying in the next year.

A policyholder dies in the next year.

What is the probability that the deceased policyholder was ultra-preferred?

  1. 0.0001
  2. 0.0010
  3. 0.0071
  4. 0.0141 Correct Answer
  5. 0.2817

Solution: D
S = Event of a standard policy
F = Event of a preferred policy
U = Event of an ultra-preferred policy
D = Event that a policyholder dies