Which of the following is likely a result of adverse selection?
A)Young women pay less for automobile insurance than young men.
B)New life insurance policies have a one- year suicide exclusion.
C)Smokers pay more for life insurance than nonsmokers.
D)Employment insurance premiums increase with income.

Question

Quizplus · Accepted Answer

Adverse selection refers to the tendency of individuals who are more likely to experience negative outcomes being more likely to purchase insurance. In this case, the suicide exclusion in new life insurance policies is a result of adverse selection, as individuals who are at a higher risk of committing suicide are more likely to purchase life insurance with the intention of using it to provide for their families after their death.

Which of the Following Is Likely a Result of Adverse