Large Loss Principle Law and Legal Definition

Large loss principle refers to an insurance principle, by which high severity risks are transferred through the insurance contract to protect against catastrophic occurrences. Since insurance is generally not the most cost-effective means of recovery of minor losses, an insured cannot anticipate catastrophes and thus set aside enough money to cover losses on a mathematical basis.

Actuarial tables are based on the large loss principle; the larger the number of exposures, the more closely losses will match the probability of loss.