The Problem of Adverse Selection

question 115

Multiple Choice

The problem of adverse selection

• A)implies that many people who do not need insurance coverage have it through group plans.
• B)means that those people who apply for insurance are the least likely to need insurance coverage.
• C)causes insurance underwriters to alter the health statistics of the general population when determining appropriate premiums.
• D)creates a savings element along with the insurance component of the premium and policy.
• E)does not exist in the insurance industry.

---

Definitions:

Operating Leases

A contract that allows for the use of an asset but does not convey ownership rights of the asset to the lessee.

Balance Sheet

A financial report indicating the assets, liabilities, and shareholders' equity of a company at a certain moment, which serves as a foundation for calculating returns and assessing its financial health.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as part of a retirement strategy.