Question

Shiny White dental insurance costs $258 per year. Approximately one-third of insured people need a filling, which averages $110 each. 80% of insured people get a preventive check-up each year, and the average cost of this visit is $95. If you consider Shiny White’s income and expenses, what is the expected value of each insured customer?

Answer 1

Answer:

  about $145.33

Step-by-step explanation:

Consider a group of 15 customers. They will pay ...

  15 × $258 = $3870

in premiums each year.

One-third of those, 5 customers, will submit claims for fillings, so will cost the insurance company ...

  5 × $110 = $550

And 80% of them, 12 customers, will submit claims for preventive check-ups, so will cost the company ...

  12 × $95 = $1140

The net income from these 15 customers will be ...

  $3870 -550 -1140 = $2180

Then the average income per customer is this value divided by the 15 customers in the group:

  $2180/15 = $145.33

_____

Alternate solution

Above, we chose a number of customers that made 1/3 of them and 4/5 of them be whole numbers. You can also work with one premium and the probability of a claim:

  258 - (1/3)·110 - 0.80·95 = 145.33

Answer 2

Answer: It's B.

$145.70

Step-by-step explanation: