Law Of Large Numbers
Definition of "Law of large numbers"
Mathematical premise stating that the greater the number of exposures, (1) the more accurate the prediction; (2) the less the deviation of the actual losses from the expected losses (X - x approaches zero); and (3) the greater the credibility of the prediction (credibility approaches 1). This law forms the basis for the statistical expectation of loss upon which premium rates for insurance policies are calculated. Out of a large group of policyholders the insurance company can fairly accurately predict not by name but by number, the number of policyholders who will suffer a loss. Life insurance premiums are loaded for the expected loss plus modest deviations. For example, if a life insurance company expects (x) 10,000 of its policy-holders to die in a particular year and that number or fewer actually die (X), there is no cause for concern on the part of the company's actuaries. However, if the life insurance company expects (*) 10,000 of its policyholders to die in a particular year and more than that number dies (X) there is much cause for concern by actuaries.
Popular Insurance Terms
Direct payment to a new custodian for a retirement plan. This payment is not a taxable event since it is not a distribution. The payment must be between like plans; for example, one ...
Same as term Commutation Right: right of a beneficiary of a life insurance policy to exchange the future installments due that beneficiary for a lump sum distribution. ...
Type of flexible spending account. ...
Language in the insurance policy that can be considered unclear or subject to different interpretations. Under these circumstances, the courts have generally ruled in favor of insured ...
Publication stipulating underwriting rules applicable for a given line of insurance, classifications of exposures within that line of insurance, and premium rates per classification. For ...
Plan in which funds are currently allocated to purchase retirement benefits. An employee is thus assured of receiving retirement payments, even if the employer is no longer in business at ...
Sum total of all assets owned by the decedent to include personal property, real property, and trust property. ...
Bulletin issued June, 1993, with disclosure requirements that strongly suggest that insurance companies establish reserves or add to current reserves for asbestos and environmental risks to ...
Insurance company whose corporate charter and bylaws prevent assessment of its policyowners, regardless of how adverse its loss and expense experience may become. ...
Have a question or comment?
We're here to help.