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
Insurance in which most of the premium (generally 80 to 90%) is invested in traditional fixed income securities. The remainder of the premium is invested in call option contracts tied to a ...
Coverage provided for individuals or businesses for loss due to forgery or alteration of such financial instruments as notes, checks, drafts, and promissory notes. ...
Arrangement between the buyer and the seller in which there is a mutual agreement to buy or sell a security at a given price at a stipulated future date. These contracts are effected on a ...
Property coverage for damage or destruction of structures in the course of construction. For example, the standing frame of a house destroyed by fire would be covered. ...
Authority derived from an agent's contract with an insurance company. ...
Organization of over 300 property and casualty insurance companies whose mission is to investigate fraudulent claims and bring to justice those making such claims. ...
Coverage such as HOMEOWNERS INSURANCE POLICY SECTION II On an all risks basis for personal acts and omissions by the insured and residents of the insured's household. Included are sports ...
Common exclusion in life and accidental death insurance (double indemnity) policies, indicating that coverage does not apply unless an insured is a passenger on a regularly scheduled ...
Hospital charges in addition to room and board. Miscellaneous expenses are covered under a basic hospital plan, with the limits of coverage expressed either as a multiple of the daily ...
Have a question or comment?
We're here to help.