Companies offering life insurance often require a drug test to determine whether the buyer is a smoker.A smoker then must pay a higher premium.This is an example of:

Question

Quizplus · Accepted Answer

The requirement of a drug test for life insurance companies is a screening process to deal with adverse selection. Smokers are more likely to require insurance due to their higher risk of health problems, therefore requiring them to pay a higher premium helps to mitigate some of the potential losses for the insurance company. It is not providing the buyer with a personal stake, shifting the demand curve, or pooling of risk with others, as these concepts do not accurately apply to this situation.

Companies Offering Life Insurance Often Require a Drug Test to Determine