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
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Stipulation that no claim will be paid until a loss exceeds a flat dollar amount or a given percentage of the amount of insurance in force. After the loss exceeds this dollar amount or ...
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Particular type of inland marine insurance. ...
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Period when the accumulated assets in an annuity are returned to the annuitant. An annuity may be purchased either with a single payment or with many payments over the life of the contract. ...
Difference between the earned premiums and the losses and expenses of an insurance company. ...
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Provision in many business and personal policies that loss or damage to one of a pair or set of individual items does not represent the loss of the pair or set. For example, the loss of one ...
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