When Faced with an Insurance Policy Whose Premium Exceeds the Expected

question 27

Multiple Choice

When faced with an insurance policy whose premium exceeds the expected value of the claim:

• A)no one will buy it.
• B)only risk-tolerant individuals will buy it.
• C)risk-averse individuals will buy it as long as the utility associated with the insurance is greater than the expected utility without the insurance.
• D)risk-averse individuals will buy it as long as the utility associated with the insurance is less than the expected utility without the insurance.

---

Definitions:

Discretionary

Refers to funds or expenses that are non-essential and can be adjusted or eliminated depending on the financial situation.

Healthcare

Refers to the organized provision of medical care to individuals or a community through services offered by medical professionals.

Disposable Income

The amount of money individuals or households have to spend or save after income taxes have been deducted.

Discretionary Income

The amount of an individual's income left for spending, investing, or saving after taxes and personal necessities (like food, shelter) are taken care of.