A life insurance company will often require a potential customer 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 requiring a physical exam is a form of screening, which is used to identify and select customers who are less risky to insure. This is done to lessen the problem of adverse selection, which occurs when insurance companies end up with a disproportionate number of high-risk customers, leading to higher payouts and potentially bankrupting the company.

A Life Insurance Company Will Often Require a Potential Customer