In terms of insurance, which of the following statements is explained by adverse selection?
A)A person with riskier characteristics tends to be more likely to buy insurance.
B)A person who is more risk-averse tends to be more likely to buy insurance.
C)Insurance companies charge risk-averse customers a higher premium, since they need more peace of mind.
D)None of these are true.

Question

Quizplus · Accepted Answer

Adverse selection occurs when individuals with a higher risk of a certain event occurring are more likely to purchase insurance than those at a lower risk. This is because those at higher risk value the insurance more as they are more likely to need it.

In Terms of Insurance, Which of the Following Statements Is