Adverse Selection

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What is 'Adverse Selection'

Adverse selection is the tendency of those in dangerous jobs or high risk lifestyles to get life insurance.

2. A situation where sellers have information that buyers don't (or vice versa) about some aspect of product quality.

BREAKING DOWN 'Adverse Selection'

1. In order to fight adverse selection, insurance companies try to reduce exposure to large claims by limiting coverage or raising premiums.

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RELATED FAQS
  1. How does adverse selection affect insurance premiums?

    Find out what causes adverse selection in the insurance market and why it drives up premiums for all policyholders. Read Answer >>
  2. How does adverse selection contribute to market failure?

    Examine an brief introduction to the adverse selection theory of market failure, and find out why economists disagree about ... Read Answer >>
  3. In what areas does adverse selection exist in the stock market?

    Read about some of the types of adverse selection in the stock market, whether that includes insider trading, and how intermediaries ... Read Answer >>
  4. What is the difference between adverse selection and moral hazard?

    Learn about the differences between adverse selection and moral hazard in economics, and how blocking price signals causes ... Read Answer >>
  5. How can the problem of asymmetric information be overcome?

    Find out how market actors deal with the problem of asymmetric information, particularly when it leads to possible adverse ... Read Answer >>
  6. What is the difference between moral hazard and adverse selection?

    Learn about moral hazard and adverse selection, how the two processes create undesired results, and the difference between ... Read Answer >>
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