Large Loss Principle
Definition of "Large loss principle"
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.
Popular Insurance Terms
Liability insurance that provides coverage for the insured in the event the insured's negligent acts and/or omissions result in libel, slander, invasion of privacy, or false arrest suit. ...
Inability of the insured to perform one or more of the important daily duties of that insured's occupation. The income payment to the insured is reduced from that of total disability. ...
Same as term Depositors Forgery Insurance: coverage provided for individuals or businesses for loss due to forgery or alteration of such financial instruments as notes, checks, drafts, and ...
Risk incurred by the insurance company after it makes the commitment to make the loan at some future time and the borrower may not accept the loan at that time. ...
State that increases the probability of a loss. For example, storage of flammable material next to a furnace in one's home increases the hazard with the knowledge of an insured, and is ...
Provision in marine insurance listing onshore perils covered. In the case of marine cargo, these may include such occurrences as damage from flooding, sprinklers, collapse of docks, and ...
Business interruption insurance in which the insured is indemnified for loss of earnings and payment of expenses resulting from adverse weather conditions. For example, the raining out of a ...
To accept by a reinsurer, part or all of a risk transferred to it by a primary insurer or another reinsurer. ...
Liability exposure, in insurance, associated with three classifications of individuals that may come upon an insured property: TRESPASSER: individual enters without permission. Generally ...
Have a question or comment?
We're here to help.