Large Loss Principle
Definition of "Large loss principle"
Transfer of high severity risks through the insurance contract to protect against catastrophic occurrences. While insurance is generally not the most cost-effective means of recovery of minor losses, an insured cannot predict catastrophes and thus set aside enough money to cover losses on a mathematical basis or to self-insure. Actuarial tables are based on the large loss principle: the larger the number of exposures, the more closely losses will match the probability of loss. In essence, a large number of insureds, each paying a modest sum into an insurance plan, can protect against the relatively few catastrophes that will strike some of their numbers.
Popular Insurance Terms
Confirmation by an insurance company of the acts of its agent, regardless of whether or not these acts were committed within the limit of authority granted the agent by the company. By so ...
Feature in a life insurance policy allowing a policyowner to freely assign (give, sell) a policy to another or institution. For example, in order to secure a loan, a bank asks to be ...
Form of inland marine insurance under which an insured is indemnified for damage or destruction of his or her on-premises property if it is due to radioactive material stored or used within ...
Effort of a poor risk to seek insurance coverage. The onset of a health problem such as heart disease, for example, may prompt a person to apply for life insurance before seeking medical ...
Organization that seeks to educate the public on the benefits of private health insurance coverage. Its membership consists of private companies that sell health insurance. The HIAA ...
Exceptions to coverage. There is no obligation for an insurance company to pay a claim if: the loss is not covered by a policy, or a particular person is not included in the definition of ...
Chart showing rate of death at each age in terms of number of deaths per thousand. ...
Fund that comes into existence because premiums for ordinary life insurance policies in their early years are higher than necessary for the pure cost of protection. These excess premiums, ...
New pension-accounting rule created by the Financial Accounting Standards Board. The objective of this rule is to clarify pension accounting so that investors, employers, and employees will ...
Have a question or comment?
We're here to help.