Requiring applicants for life insurance to undergo a physical examination is an effective way to:
A) reduce moral hazard.
B) increase information asymmetry.
C) reduce adverse selection.
D) increase sales.
E) none of the above.

Question

Quizplus · Accepted Answer

Requiring a physical examination can help reduce adverse selection by providing insurers with more accurate information about an applicant's health status, which can lead to more accurate pricing and reduce the likelihood of high-risk individuals (who may be more likely to need to make a claim) being accepted into the insurance pool. It does not directly address moral hazard or information asymmetry, and may not necessarily increase sales as some applicants may be deterred by the requirement of a physical exam.

Requiring Applicants for Life Insurance to Undergo a Physical Examination