Fire insurance policies 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

Deductibles in fire insurance policies are used to discourage policyholders from acting recklessly or negligently, which can reduce the likelihood of a fire occurring. This is known as minimizing moral hazard. The intent of deductibles is to minimize the possibility of fraud or false claims, as policyholders are less likely to submit claims for smaller losses.

Fire Insurance Policies Include Deductibles