Life & Health · Chapter 2 · The Nature of Insurance
Adverse Selection
Definition
Selection AGAINST the insurance company: higher-risk individuals are more likely to seek or keep coverage than lower-risk individuals — often because applicants know more about their own risk than the insurer does.
Example
Someone conceals a serious health condition on an application, or waits until they're sick to buy health insurance.
Exam tip
Insurers combat it with underwriting (plus higher premiums for higher risks, waiting periods, and group coverage). Concealing material information IS a form of adverse selection.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms