A Life Insurance Company Requires New Applicants to Have a Medical

question 302

Multiple Choice

A life insurance company requires new applicants to have a medical exam prior to writing the insurance policy. This requirement is an example of

• A)signaling.
• B)screening.
• C)moral hazard.
• D)adverse selection.

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Definitions:

Market Signals

Indicators or signs that guide economic actors to make decisions based on current market conditions.

Moral Hazard

A situation where one party is more likely to take risks because they do not bear the full consequences of those risks.

Warranties

Guarantees issued by a manufacturer or seller to a buyer, promising to repair or replace a product if it fails within a certain period of time.

Education

The systematic process of facilitating learning, or the acquisition of knowledge, skills, values, beliefs, and habits through various methods such as teaching, training, storytelling, discussion, and research.