General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Which statement correctly distinguishes adverse selection from moral hazard?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Adverse selection (anti-selection) describes what happens at the point of purchase: people who know they present higher risk are more likely to apply for coverage, skewing the pool. Moral hazard describes behavior AFTER coverage exists: insureds may be less careful — or even dishonest — because insurance will absorb the loss. Underwriting, waiting periods, and preexisting-condition clauses address adverse selection, while deductibles, coinsurance, and fraud controls address moral hazard.
Why the other options are wrong
- B) This reverses the definitions: moral hazard is behavior change after coverage; adverse selection is high-risk individuals seeking coverage.
- C) They are distinct concepts: one is about who buys, the other about how insureds behave; both increase insurer loss but through different mechanisms.
- D) Both concepts apply to group and individual plans alike.
Memory hook
Adverse selection buys the risk; moral hazard lives it. One skews the pool, the other raises the claims.