When Allstate sells fire insurance policies, it often include deductibles:
A)because, when it comes to fire, most people are risk averse.
B)because it is too expensive to fully insure something against fire.
C)to minimize moral hazard.
D)to minimize adverse selection.

Question

Quizplus · Accepted Answer

Allstate includes deductibles in their fire insurance policies to minimize moral hazard, which refers to the tendency for people to take greater risks when they are insured. By having a deductible, the insured person has to bear some of the cost of the loss, which means they are less likely to take unnecessary risks that could lead to a fire. It also helps to ensure that the insured person has a financial stake in preventing fires and minimizing damage if a fire does occur.

When Allstate Sells Fire Insurance Policies, It Often Include Deductibles