Question

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

A. Events that are statistically difficult to predict for a specific individual are more predictable for a large number of individuals.

B. Events that are statistically difficult to predict for a large number of individuals are more predictable for an individual.

C. Insurers can adequately predict the losses expected for an individual, but are unable to predict the losses expected for large numbers of individuals.

B. Which of the following is not a category of property risk?

A. Loss of value from economic obsolescence.

B. Liability losses resulting from negligent use of property.

C. Loss of property due to fire, wind, theft, or others hazards.

Answer 1

For A questions answer is : C) Insurers can adequately predict the losses expected for an individual, but are unable to predict the losses expected for large numbers of individuals

Because:

The law of large numbers states that as the number of policyholders increases, the more confident the insurance company is its prediction will prove true. Therefore, insurance companies attempt to acquire a large number of similar policyholders who all contribute to a fund which will pay the losses.

For B questions answer is A : Loss of value from economic obsolescence is not related to a Property

Because :

Economic obsolescence is a form of depreciation caused by factors that are not on the property, in the property, or even within the property lines. It can be caused by factors like the neighborhood experiencing a rise in crime. It can also be caused by economic factors such as problems in the job market.