General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which statement correctly describes how an insurer uses the law of large numbers when pricing disability income insurance?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Morbidity tables summarize the frequency and duration of sickness and disability observed across large groups of insureds. By applying the law of large numbers, the insurer uses these tables to estimate how many policyholders will become disabled and how long benefits will be paid, which is the foundation of premium setting. The law works for the group as a whole — it cannot predict which specific individual will claim, and it certainly does not guarantee that any one insured's experience will match the average.
Why the other options are wrong
- B) The law of large numbers predicts outcomes for a group, never for a particular individual; individual disability is inherently unpredictable.
- C) Tables describe group averages; an individual's actual experience may differ widely from the average in either direction.
- D) Insurers set premiums from group morbidity experience, not from a single applicant's personal claims history.
Memory hook
Morbidity tables forecast the crowd, never the single ticket holder. The pool predicts; the person is a gamble.