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
Amount of insurance coverage that an insurance company is willing to write on a given category of business. ...
Percentage of first year's premium paid to compensate an insurance agent. This is known as the "First Years" to show how much new business the agent is generating, compared with renewal ...
Modifications of the traditional defined benefit plan in which employees are credited with a specified percentage for each year of recognized service with the employer. Upon termination of ...
Type of proportional reinsurance under which the ceding company (primary insurer) cedes to a re-insurer its net amount at risk for the amount above its retention limit on a life insurance ...
Buy or sell order for security that expires at the end of the trading date on which it was entered if not executed. ...
Policy owner rights under a life insurance policy, including the right to name a new beneficiary at any time and to surrender the policy for its cash value. ...
unlawful application of force to another's person; physical striking of another without permission. ...
Insurance issued to a creditor (lender) to cover the life of a debtor (borrower) for an outstanding loan. If the debtor dies prior to repayment of the debt, the policy will pay off the ...
Over a long period of time, the average loss an individual, individuals, or an organization can expect to incur from a particular exposure. ...
Have a question or comment?
We're here to help.