Question

One problem with not allowing insurance companies to request their clients' medical histories for life insurance purposes is

		Uninsurability
		Adverse Selection
		Risk Aversion
		Risk Pooling
		Risk Sharing

Answer 1

Adverse Selection. (which is Option B)

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Explanation:

Without the access to medical records of clients, the insurance companies may have limited or no information on the current health status of their clients. The clients may not disclose existing pre-medical conditions (to the insurance company) while obtaining the insurance. This can result in adverse selection of individuals (clients) by the insurance companies for selling their insurance policies. If the insurance company had prior knowledge of client's medical conditions, the company may not offer insurance policy to the client with existing medical conditions or charge higher insurance premium to cover the associated risks. Therefore, the problem with not allowing insurance companies to request their clients' medical histories for life insurance purposes is adverse selection.