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.

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 ... 
Subjective Probability
A probability derived from an individual's personal judgment ... 
Underwriting Income
Profit generated by an insurer's underwriting activity over a ... 
Continuous Compounding
The process of earning interest on top of interest. The interest ... 
Compound Interest
Compound Interest is interest calculated on the initial principal ...

Investing
Estimating with Subjective Probability
Subjective probability is someoneâ€™s estimation that an event will occur. 
Investing
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
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
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. 
Insurance
What Prequalification and Underwriting Do
Learn now prequalification and underwriting can help you buy the policy that best meets your needs. 
Insurance
Bundle Your Insurance For Big Savings
Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts. 
Personal Finance
APR and APY: Why Your Bank Hopes You Can't Tell The Difference
Banks use these rates to entice borrowers and investors. Find out what you're really getting. 
Investing
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome. 
Retirement
Using Compounding to Boost Retirement Savings
Allowing growth on your investments to compound over time gives you immense returns when saving for retirement.

What formula can I use to calculate interest on interest?
Find out more about compounding interest, what it measures and how to calculate the amount of compound interest accrued using ... Read Answer >> 
How to calculate compound loan interest in Excel?
Find out about compound interest and how to use the compounding interest formula in Microsoft Excel to calculate the compound ... Read Answer >> 
What is the difference between continuous compounding and discrete compounding?
Learn to differentiate between and calculate the continuous and discrete compounding formulas for interestgenerating investments ... Read Answer >>