DEFINITION of 'Compound Probability'
A mathematical term relating to the likeliness of two independent events occurring. The compound probability is equal to the probability of the first event multiplied by the probability of the second event. Compound probabilities are used by insurance underwriters to assess risks and assign premiums to various insurance products.
BREAKING DOWN 'Compound Probability'
The most basic example of compound probability is flipping a coin twice. If the probability of getting heads is 50% (.50), then the chances of getting heads twice in a row would be (.50 X .50), or .25 (25%).
As it relates to insurance, underwriters may wish to know, for example, if both members of a married couple will reach the age of 75, given their independent probabilities. Or, the underwriter may want to know the odds that two major hurricanes hit a given geographical region within a certain time frame. The results of their math will determine how much to charge for insuring people or property.

Joint Probability
A statistical measure where the likelihood of two events occurring ... 
Dutch Book Theorem
A type of probability theory that postulates that profit opportunities ... 
Addition Rule For Probabilities
A statistical property that states the probability of one and/or ... 
Underwriting Risk
Underwriting risk is the risk of loss borne by an underwriter ... 
Continuous Compounding
The process of earning interest on top of interest. The interest ... 
Underwriting Income
Profit generated by an insurer's underwriting activity over a ...

Investing
Financial Forecasting: The Bayesian Method
This method can help refine probability estimates using an intuitive process. 
Insurance
Is Insurance Underwriting Right For You?
If you have excellent analytical skills and an eye for detail, this may be your calling. 
Investing
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
Investing
Estimating with Subjective Probability
Subjective probability is someoneâ€™s estimation that an event will occur. 
Investing
Scenario Analysis Provides Glimpse Of Portfolio Potential
This statistical method estimates how far a stock might fall in a worstcase scenario. 
Investing
Learn Simple and Compound Interest
Interest is defined as the cost of borrowing money, and depending on how it is calculated, it can be classified as simple interest or compound interest. 
Insurance
What is Underwriting?
Underwriting is a term most often used in investment banking, insurance and commercial banking. Generally, underwriting means receiving a remuneration for the willingness to pay for or incur ... 
Insurance
What Makes Your Insurance Premium Go Up?
You just opened your insurance renewal and found that the premium went up. Here's why it can happen. 
Insurance
Behind the Law of Large Numbers in the Insurance Industry
Discover how the law of large numbers helps insurance companies cope with risk, and why the theory does not always live up to reality. 
Retirement
Using Compounding to Boost Retirement Savings
Allowing growth on your investments to compound over time gives you immense returns when saving for retirement.

How does insurance underwriting differ from investment underwriting?
Understand the difference between insurance underwriting and investment underwriting, including what types of risks an underwriter ... Read Answer >> 
What are examples of risks for all underwriter types?
Learn about the risks faced by different types of underwriting activity. Explore specific examples of risks faced by insurance ... Read Answer >> 
How do I use the rule of 72 to calculate continuous compounding?
Find out why the rule of 72 does not accurately reflect the growth caused by continuous compounding, and which number can ... Read Answer >> 
How do mutual funds compound interest?
Learn how mutual funds can grow wealth over time through the magic of compound interest by reinvesting dividends back into ... Read Answer >>