Premiums in the policy

Let us see on what basis premiums are calcualted:

Premiums are the amount of money paid yearly or monthly or quaterly based on the policy taken by us.

The premium for insurance is based on expectations of the losses. These expectations are based on studies of occurences in the past and the use of statistical principles.There is,in statistics,a "law of large numbers".When you toss a coin,the chance,or probability,of a head or tail coming up is half.If the coin is tossed 10 times,one cannot be sure that the head will come up 5 times. If the coin is tossed 1 million times,the number of heads variation will be less as a percentage.So also,the larger the numbers(of risks)included in the pool,the better the chnaces that the assumptions regarding the probability of the risk occuring,will be realized in practice.In order to be amenable to statistical predictions,insures have to insure large numbers of risks.The larger the spread of the business,the better the experience in relation to expectations.The probability of risk being the basis of premium calculation,large numbers are necessary to ensure that the premium charged is viable or adequate.

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