Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures?

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Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures?

A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.
B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units.
C. One requirement of the law of large numbers is that past events occur under different circumstances in the future.
D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units.

Answer: A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.

Assignment Questions

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An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?

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