Which of the following best demonstrates the problem of moral hazard ?
Correct answer: C. Enzo drives more recklessly after he buys car insurance
- A. Josephine doesn't buy health insurance because it is too expensive, and she is healthy
- B. A life insurance company forces Enzo to have a medical examination prior to selling him insurance
- C. Enzo drives more recklessly after he buys car insurance
- D. Fatima chooses to attend a well-respected college
Explanation
Moral hazard occurs when insurance changes a person's behaviour after coverage is obtained, because the insurer bears part of the cost. Driving more recklessly after buying car insurance is a direct example.
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