The large-loss principle states that people should insure potentially serious and unlikely losses before insuring more likely and less serious losses.

Question

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The large-loss principle suggests that insurance should prioritize coverage for events that are low in probability but high in potential loss, rather than for more frequent, less severe events. This is because the financial impact of large, catastrophic losses can be devastating without insurance, whereas smaller, more frequent losses can often be managed out-of-pocket.

The Large-Loss Principle States That People Should Insure Potentially Serious