Adverse Selection

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DEFINITION of 'Adverse Selection'

1. 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.

INVESTOPEDIA EXPLAINS '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. Which markets are most prone to market failure from adverse selection?

    Adverse selection causes market failure -- a sub-optimal level of beneficial trades -- whenever material information cannot ... Read Full Answer >>
  2. How does adverse selection affect insurance premiums?

    Any limits on an insurance provider's ability to appropriately price risk – to economize on important information – might ... Read Full Answer >>
  3. How do I change my contingent beneficiary?

    Keeping your beneficiary designations up to date is an important aspect of comprehensive estate planning. Listing a primary ... Read Full Answer >>
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  5. If both the primary and contingent beneficiaries are unavailable, what happens to ...

    One of the most common mistakes in estate planning is not keeping beneficiary designations up to date on life insurance policies ... Read Full Answer >>
  6. What types of insurance policies have contingent beneficiaries?

    A contingent beneficiary is a person designated to receive the benefits of an insurance policy or retirement account if the ... Read Full Answer >>
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