Question

Insurance relies on

to reduce the speculative element of insurance.
1. O selling as many policies as possible
2.O younger people buying larger policies
3. O people forgetting that they have coverage
4. O the Law of Large Numbers

Answer 1

Answer:
The answer is 4. The Law of Large Numbers helps to reduce the speculative element of insurance.

Step-by-step explanation:
The Law of Large Numbers in insurance refers to the principle that as the number of insured individuals increases, the more accurately the actual losses experienced by the insured population will align with the predicted or expected losses. In other words, it is a statistical concept that helps insurance companies minimize the element of uncertainty or speculation in their calculations.

By insuring a large number of individuals, insurance companies can better predict the frequency and severity of potential losses. This allows them to more accurately set premiums and determine the amount of coverage they can offer. The Law of Large Numbers provides a foundation for insurance companies to spread the risk among a larger pool of policyholders, reducing the impact of individual losses and ensuring the financial stability of the insurance system.

Selling as many policies as possible, younger people buying larger policies, and people forgetting that they have coverage are not directly related to reducing the speculative element of insurance. While selling more policies and having a diverse pool of policyholders can help spread the risk, and younger people buying larger policies may contribute to the overall premiums collected, it is the Law of Large Numbers that specifically addresses the statistical principle behind reducing the speculative element in insurance.

Answer 2

Insurance relies on the Law of Large Numbers to reduce the speculative element of insurance. The Law of Large Numbers is a fundamental principle in probability and statistics that states that as the number of events (in this case, insurance policies) increases, the actual results will more closely approximate the expected results.

In the context of insurance, this means that insurance companies can predict, with a reasonable degree of accuracy, the frequency and magnitude of potential claims across a large pool of policyholders. By spreading the risk over a diverse group of insured individuals, the company can minimize the impact of unexpected or rare events and provide stable and predictable coverage to their policyholders.

Selling as many policies as possible (Option 1) may help the insurance company increase its customer base, but it doesn't directly reduce the speculative element of insurance. Option 2 (younger people buying larger policies) and Option 3 (people forgetting that they have coverage) are not directly related to reducing the speculative element either. The Law of Large Numbers is the key statistical principle that underpins the stability and predictability of insurance.