Which of the Following Insurance Practices Attempts to Minimize the Adverse

question 39

Multiple Choice

Which of the following insurance practices attempts to minimize the adverse selection problem insurance companies face?

• A) Prevention of fraud.
• B) Risk-based premiums.
• C) Restrictive provisions.
• D) Deductibles.

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Definitions:

Ordinary Gain

A profit resulting from business operations or the sale of assets, excluding extraordinary items and discontinued operations.

Extraordinary Gain

A gain resulting from events or transactions that are both unusual in nature and infrequent in occurrence, separated from regular business operations.

Fair Market Value

The price at which an asset would sell in the market under conditions where buyers and sellers are acting freely, informed, and without undue pressure.

Book Value

The net value of a company's assets as listed on the balance sheet, calculated as total assets minus intangible assets (like goodwill) and liabilities.