A farmer purchases a 5 year insurance policy that covers crop destruction due to hail. Over the 5 year period

Filed under: Farming |

cover crops
Image by David Bradbeer
Oats and barley that have been flattened to provide a dense cover crop for the soil. The oats will winter kill (they do not tolerate frost) but will still provide a cover for the soil into spring.

Question by jane: A farmer purchases a 5 year insurance policy that covers crop destruction due to hail. Over the 5 year period
A farmer purchases a 5 year insurance policy that covers crop destruction due to hail. Over the 5 year period, the farmer will receive a benefit of 20 for each year in which hail destroys his crop, subject to a maximum of 3 benefit payments. The probability that hail will destroy the farmer’s crop in any given year is 0.5, independent of any other year.
Calculate the expected benefit that the farmer will receive over a 5 year period.

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2 Responses to A farmer purchases a 5 year insurance policy that covers crop destruction due to hail. Over the 5 year period

  1. unsure if I am understanding the question – where are you from because I have never heard of a 5 year crop hail policy – what is the total liability guartantee

    policy would only pay out 20% per year – and only pays out for 3 of the 5 years? so you pay 100% of the premium for 60% of a claim?

    butch
    October 16, 2011 at 4:29 pm
    Reply

  2. That sounds like a homework assignment, not an insurance question. Please add more detail if you have a serious question.

    aaron p
    October 16, 2011 at 4:53 pm
    Reply

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