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
Same as term Occurrence Basis: coverage, in liability insurance, for harm suffered by others because of events occurring while a policy is in force, regardless of when a claim is actually ...
Net profit of a business, less dividends. Reinvestment of retained earnings enables an insurance company to write more business from a stronger capital base. Contributions to retained ...
Settlement choice under a life insurance policy whereby a beneficiary may elect to have the death proceeds paid in the form of a joint and survivor annuity. ...
Sample of n elements selected from a population of A? elements in such a way that the sample has essentially the same characteristics as the population. The random sample serves as the ...
Based on historical loss experience, from which future loss experience is predicted. ...
Fund established to pay specified losses, usually the low severity property losses. This type of account is an excellent device in conjunction with a self-insurance plan, in which the fund ...
Table used by the Internal Revenue Service (IRS) in evaluating split dollar life insurance plans as to the extent of the economic benefit that is considered taxable ordinary income to the ...
Total limit of coverage under all policies applicable to the covered loss for which an insured can be indemnified. For example, if two health insurance policies are in force on the same ...
Canadian retirement plan much like U.S. individual retirement account (IRA). Here, an employee can contribute on a tax deductible basis C $3500 each year as a member of an employer pension ...
Have a question or comment?
We're here to help.