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
Aggregate of face amount of coverage paid up, or on which premiums are still being paid, as issued by a life insurance company. This is one measure used to rank life insurance companies by ...
Federal agency that researches injury and illness arising from workplace hazards and recommends standards for maximum exposures to hazardous substances. ...
Business owned by stockholders, as contrasted to a mutual insurance company, which is owned by its policyholders. Many major life insurers are mutual companies whereas some leading ...
Same as term Annual Statement: report that an insurance company must file annually with the State Insurance Commissioner in each state in which it does business. The statement shows the ...
Cost of the assets listed on the accounting records of the company. These assets include the following: real estate (to include any adjustments for depreciation), transportation equipment ...
Death without a will having been drawn. Under this circumstance, the court follows state law in deciding how the estate of the deceased is to be distributed. ...
Liability incurred by one insured as the result of his or her damaging another insured when both insureds are covered under the same liability insurance policy. Each insured must be treated ...
Life insurance on the life of a child. ...
Trust established under the Internal Revenue Service code that is used to provide accident and sickness benefits to member employees. ...
Have a question or comment?
We're here to help.