Question

Insurance coverage relies on the law of large numbers, meaning:

1) The larger the number of insured individuals, the more accurate the predictions of risk and cost.
2) The larger the number of insured individuals, the lower the premiums.
3) The larger the number of insured individuals, the higher the premiums.
4) The larger the number of insured individuals, the more likely claims will be denied.

Answer 1

The correct answer is option 1. The law of large numbers in insurance states that the larger the number of insured individuals, the more accurate the predictions of risk and cost.

Step-by-step explanation:

The question is related to insurance coverage and the law of large numbers in mathematics.

The correct option is: 1) The larger the number of insured individuals, the more accurate the predictions of risk and cost. The law of large numbers states that with a large enough sample size, the average outcome will be close to the expected outcome. In the context of insurance, this means that the more individuals who are insured, the more accurate the insurance company's predictions of risk and cost will be.

For example, if an insurance company only insures a small number of individuals, the sample size is not large enough to accurately predict the risk and cost associated with insuring those individuals. However, if the insurance company has a large number of insured individuals, the law of large numbers ensures that the predictions of risk and cost will be more accurate.