A life insurance company must be concerned about the possibility that the people who buy life insurance may tend to be less healthy than those who do not.This is an example of adverse selection.

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Adverse selection occurs when one party has more information or a higher risk level than the other party, resulting in an unfair advantage. In the case of life insurance, people who believe they are likely to die soon (i.e. because of poor health) are more likely to purchase life insurance, which can lead to a higher risk pool for the insurance company.

A Life Insurance Company Must Be Concerned About the Possibility