State Farm sells life insurance through affiliated companies and outlets that make up one of the largest insurance companies in the United States. State Farm addresses the problem of moral hazard by:

Question

Quizplus · Accepted Answer

State Farm requires a deductible, which incentivizes insured individuals to take reasonable precautions to avoid losses. This reduces the likelihood of moral hazard, where individuals who are insured may become less careful or take greater risks knowing that they have insurance protection to fall back on. By requiring a deductible, State Farm encourages insured individuals to take more responsibility for avoiding losses, reducing the risk of moral hazard.

State Farm Sells Life Insurance Through Affiliated Companies and Outlets