General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Which situation best illustrates adverse selection in health insurance?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Adverse selection occurs when those most likely to have losses are the ones most likely to seek coverage — the applicant who buys only after learning of a costly condition. This unbalances the risk pool and drives up average claims. Underwriting and preexisting condition rules exist largely to manage this tendency.
Why the other options are wrong
- A) A healthy person applying at a routine life event such as a job change is the normal flow of risk into a pool, not adverse selection.
- C) Risk classification by occupation is a legitimate underwriting practice that keeps rates fair; it is not adverse selection.
- D) Honest disclosure and rating is standard underwriting behavior and helps the insurer price the risk correctly.
Memory hook
Adverse selection = the pool fills up with people who already know they will need the insurance. Underwriting is the bouncer at the door.