Financial Risk Manager Part 1

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Explanation:

Correct answer: A

Moral hazard is the main concern after insurance is purchased, because the insured may take fewer precautions or file larger claims once covered.
For life insurance, the primary risk is usually adverse selection: people who know they have a higher probability of death are more likely to buy more coverage.
Adverse selection happens before purchase and results from asymmetric information.
Deductibles help reduce moral hazard by making the insured retain part of the loss, encouraging more careful behavior.

So statement A is false.

Explanation:

Correct answer: A

Moral hazard is the main concern after insurance is purchased, because the insured may take fewer precautions or file larger claims once covered.
For life insurance, the primary risk is usually adverse selection: people who know they have a higher probability of death are more likely to buy more coverage.
Adverse selection happens before purchase and results from asymmetric information.
Deductibles help reduce moral hazard by making the insured retain part of the loss, encouraging more careful behavior.

So statement A is false.

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MManit

Last updated: April 18, 2026 at 11:32

Moral hazard is the primary risk for life insurance companies

62.5%

Adverse selection occurs before insurance is purchased and is a risk that is enabled due to an asymmetric information problem

12.5%

Moral hazard occurs after insurance is purchased and is a material risk for health and property-casualty (P&C) insurance companies

12.5%

Insurance companies reduce their moral hazard risk with policy deductibles

12.5%