Explanation:
Adverse selection occurs when policyholders with higher risk are more likely to seek insurance coverage than those with lower risk. In the case of life insurance, adverse selection can occur when the insurance company fails to ask the applicants to disclose pre-existing medical conditions, resulting in a higher-risk pool of policyholders.
B is incorrect. This is an example of fraud, not adverse selection.
C is incorrect. This is an example of the insured event occurring, which is not related to adverse selection.
D is incorrect. This is an example of a failure of the insurance company to fulfill its obligations, which is not related to adverse selection.
Q.5338 A group of insurance agents is discussing the risks facing life insurance companies. The agents are particularly concerned about the potential for adverse selection. Which of the following is an example of adverse selection in the life insurance market?
A
A life insurance applicant not being asked to disclose a pre-existing medical condition.
B
A life insurance policyholder lying about their age to get a lower premium.
C
A life insurance policyholder dying before the policy matures.
D
A life insurance company failing to pay out a valid claim.
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