A life insurance company will often require an applicant to submit to a brief physical exam to assess that person's basic level of health.This practice is a form of _____ to lessen the problem of _____.
A)diversification;moral hazard
B)signaling;deductibles
C)reputation;adverse selection
D)screening;adverse selection

Question

Quizplus · Accepted Answer

The practice of conducting a physical exam is a form of screening, which is used to identify risky applicants to lessen the problem of adverse selection. Adverse selection occurs when insurance companies attract a disproportionate number of high-risk applicants, which can lead to higher costs and lower profits. By screening applicants, the insurance company can identify those with higher risk profiles and adjust premiums or exclude coverage to manage their risk. The other answer choices are not relevant to the scenario described in the question.

A Life Insurance Company Will Often Require an Applicant to Submit