Final answer:
The scenario described is an example of adverse selection, where there is asymmetric information between the insurance buyer, who has more information about their health risks, and the insurance company, leading to a higher likelihood that those who are most willing to buy insurance are those who are most likely to need it. Option C is correct answer.
Step-by-step explanation:
In the context of someone most willing to buy life insurance being the one most likely to use it, we are encountering a classic example of what is known as adverse selection. Adverse selection is a term used in economics and insurance, and it describes a situation where there is an asymmetric information problem. In essence, it indicates that one party in a transaction (in this case, the buyer of insurance) has more or better information than the other party (the insurance company) regarding the risks involved.
Insurance companies face the challenge of setting premiums that fairly reflect the risk of each individual they insure. However, they may not have perfect information about the individual's actual risk level. If high-risk individuals are more inclined to purchase insurance than low-risk individuals, the insurance company may end up with a pool of insured people that is riskier on average than the general population. This could lead to financial losses for the company as they payout more in claims than they receive in premiums.
To combat this, insurance companies often use risk classification techniques to determine a fair and accurate premium for each insured individual. This can involve collecting data on various risk factors such as age, medical history, lifestyle choices, and driving records. The insurance industry's challenge is to charge premiums that are commensurate with the risk, without pricing policies too high, which could drive away low-risk customers.
The correct option that describes this scenario is (c) adverse selection.