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

Question

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This is an example of screening to deal with adverse selection. Insurers require drug tests to determine whether the buyer is a smoker and therefore at higher risk for health complications. By charging smokers a higher premium, insurers are able to mitigate their risk of having to pay out larger claims for health-related issues. This is a way of addressing adverse selection, where individuals with a higher risk of health issues are more likely to purchase insurance.

Companies Offering Life Insurance Often Require a Drug Test to Determine