CARD Q007
People who expect unusually high medical expenses are especially eager to buy a plan. What concern does this illustrate?
- Risk avoidance
- Indemnity
- Adverse selection
- Reinsurance
Adverse selection
Adverse selection occurs when people with greater-than-average loss potential are more likely to seek or retain coverage.
Why each choice is right or wrong
A. Risk avoidance
Incorrect. The people are seeking insurance, not eliminating the exposure.
B. Indemnity
Incorrect. Indemnity concerns restoring a loss, not who disproportionately seeks coverage.
C. Adverse selection
Correct. Adverse selection occurs when people with greater-than-average loss potential are more likely to seek or retain coverage.
D. Reinsurance
Incorrect. Reinsurance transfers risk between insurers, not this applicant-selection pattern.
Review the related terms
Use these lessons to revisit the concepts and try additional practice questions.