General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An insurer writes disability coverage for 20,000 similar lives. Compared with a pool of 200 similar lives, the larger pool allows the insurer to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The law of large numbers states that as the number of independent, similar exposures increases, actual experience converges toward expected experience. With 20,000 similar lives, the insurer's claims experience is highly credible, so rates can reflect expected losses closely. With 200 lives, random variation makes results unstable. The law predicts group results; it never predicts or guarantees individual outcomes.
Why the other options are wrong
- B) Any single insured can still become disabled; the law applies only to group aggregates.
- C) Reserves are a statutory and actuarial requirement regardless of pool size.
- D) Premiums reflect group experience, not each individual's own claims - that would eliminate risk pooling.
Memory hook
Bigger pool = tighter convergence. Group numbers stabilize; individuals stay random.