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
Coverage against hail damage to crops. Coverage is on a proportionate basis; that is, in the event of loss, a farmer will recover an amount based on the ratio of the damaged part of a crop ...
Three types of damages can be awarded to a plaintiff: Special Damages reimbursement for out-of-pocket expenses, including medical bills, legal charges, cost of repairing damaged or ...
Policy used to provide the funds necessary for buy-and-sell agreements whereby an income payment or a series of income payments are paid to the buyer of the disabled partner's interest ...
Arrangement that provides for the reduction of estate taxes and the payment of tax-deductible life insurance premiums. The procedure is for a donor to present a charity with a gift of a sum ...
unlawful application of force to another's person; physical striking of another without permission. ...
Addition to a business property insurance policy to cover loss of earnings, subject to a monthly limit, in the event that property of an insured is destroyed and a business cannot continue. ...
Reinsurance clause that stipulates that the reinsurer will be subject to the same fate as the ceding company. ...
in health insurance, reimbursement for an insured's medically related expenses, including room and board, surgery, medicines,anesthetics, ambulance service to and from a hospital, ...
Remedy imposed by a court of law, usually in the form of a monetary award, as compensation to the insured party for the civil wrong incurred. A civil action is initiated by the injured ...
Have a question or comment?
We're here to help.