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slides11 - Definitions Demand for Insurance Insurance –...

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Unformatted text preview: Definitions Demand for Insurance Insurance – Supply and Demand Angela Fertig Spring 2010 Angela Fertig Insurance – Supply and Demand Definitions Demand for Insurance Definitions I What is insurance? If one of us will have a $2500 injury this year, with equal probability, then if we each gave $100 (20 of us), we could insure us all from the majority of the cost. I premium = pay some amount ($100) for insurance I coverage = amount insured for ($2000) I copayment = the dollar amount payment you make when each event happens ($50) I deductible = you must pay this amount first before insurance applies ($150) I coinsurance = you are required to pay a fraction of the cost if the event happens ( $300 $2300 = 13%) Angela Fertig Insurance – Supply and Demand Definitions Demand for Insurance More definitions I expected value = ∑ prob ( event ) * return ( event ) EV(1 lotto ticket) = . 00000001 * $1 m + . 000001 * $100 k = $ . 11 I actuarially fair insurance policy = when cost (premium) exactly equals expected benefits (if EV=$1 and ticket costs $1) I utility = economists’ term for happiness I marginal utility of wealth = additional happiness for a given increase in wealth Angela Fertig Insurance – Supply and Demand Definitions...
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slides11 - Definitions Demand for Insurance Insurance –...

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