Question

which principle allows insurance companies to estimate future losses?*

• risk avoidance
• indemnity
• law of large numbers
• risk reduction

the receipt given to a life insurance applicant when the application is completed and the initial premium is received is called a(n)

• insurable receipt
• conditional receipt
• binding receipt
• insuring receipt

the principle that states that larger the number of exposure units, the more predictable the number of future losses will be is known as

• law of large numbers
• adverse selection

Explanation:

1. For the first question: Risk avoidance is avoiding a risky activity; indemnity is compensating for losses; risk reduction lessens loss severity. Only the law of large numbers uses large data sets to estimate future losses, which is how insurers operate.
2. For the second question: An insurable receipt is not a standard term; a binding receipt provides immediate coverage; an insuring receipt is not the correct standard term. A conditional receipt covers the applicant only if they meet underwriting requirements after application and initial premium payment.
3. For the third question: Adverse selection refers to high-risk individuals seeking insurance more. The law of large numbers directly states that more exposure units make future losses more predictable.

Answer:

1. law of large numbers
2. Conditional receipt
3. Law of large numbers