Companies offering life insurance often require a medical exam to determine the physical status of an applicant. An individual with high blood pressure or on prescription medication may pay a higher premium. This is an example of:

Question

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The requirement of a medical exam to determine the physical status of an applicant is a form of screening to deal with adverse selection, as the insurance company is trying to assess the risk of insuring the individual. High blood pressure or prescription medication are factors that indicate a greater risk of future health issues, and therefore the individual may pay a higher premium to reflect this increased risk. Providing a personal stake, dealing with moral hazard, and pooling risk are all important concepts in insurance, but they are not directly related to the example given in the question.

Companies Offering Life Insurance Often Require a Medical Exam to Determine