Life & Health · Chapter 2 · The Nature of Insurance
Law of Large Numbers
Definition
As the number of similar and independent exposure units increases, actual losses more closely match expected losses — letting insurers predict losses and price premiums accurately. Three conditions: independence, similarity, large number.
Exam tip
Large numbers alone aren't enough — units must also be INDEPENDENT. 10,000 homes in one flood zone ≠ predictable (one flood hits them all).
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms