Definition of "Large loss principle"

Brian Blake, Associate Broker real estate agent

Written by

Brian Blake, Associate Brokerelite badge icon

Charles Rutenberg Realty

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Extra layer of life insurance coverage. This term is often applied to double indemnity. For example, some life insurance policies provide a death benefit of a multiple of the face value if ...

Rule that concerns the distribution of the aggregate surplus among the policies in the same proportion as each respective policy has contributed to the surplus. ...

Sum of money to be received by an insured in the event a given loss occurs. ...

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 ...

Rate charged by the Federal Reserve to commercial banks for overnight loans made by these banks. If the Federal Reserve decreases the discount rate, other rates will decline as well. ...

Insurance company's reinsurance commissions and expense allowances divided by its adjusted surplus account. The smaller this ratio, the more financially sound the insurance company, since ...

Coverage if transmission equipment is damaged or destroyed on an all risks basis excluding the perils of war, wear and tear, inherent defect, and nuclear damage, consequential loss ...

Coverage for personal effects of a tourist, including apparel, books, toilet articles, watches, jewelry, luggage, portable typewriters, photographs and photography equipment and supplies. ...

Insurance salesperson who searches the marketplace in the interest of clients, not insurance companies. ...

Popular Insurance Questions