Final answer:
An insurance agent must inform the applicant about the policy terms, especially those related to non-refundable premiums, ensuring they understand the implications of the policy they are considering.
Step-by-step explanation:
An insurance agent must provide to the applicant of a life insurance policy that does not contain an unconditional refund provision certain information before accepting the applicant's initial premium. The agent should explain the terms of the policy, including any conditions under which the premium would not be refundable. In the context of the larger market dynamics, understanding the role of adverse selection and moral hazard is crucial, as these can influence insurance premiums and the availability of insurance to different risk groups. Actuarially fair premiums are calculated based on the risk profile of an individual or a group, and these premiums are essential in maintaining a stable insurance market. Without requiring adequate information provision, insurers could face increased risk from high-risk individuals, a situation they might seek to avoid.