Final answer:
Guaranteed issue insurance is typically issued without proof of insurability and involves higher premiums due to increased risk for the insurer.
It caters to individuals who might be denied traditional insurance due to health issues. The imperfect information in insurance makes risk assessment challenging.
Step-by-step explanation:
The type of policy typically issued without proof of insurability from the insured is known as guaranteed issue insurance. This kind of policy is designed to provide coverage without requiring the applicant to undergo a medical examination or provide health information.
Guaranteed issue insurance policies often come with higher premiums because the insurer assumes more risk due to the lack of information about the applicant's health status. These policies are especially important in situations where individuals may have pre-existing conditions or other health issues that would normally prevent them from obtaining traditional insurance coverage.
Insurance functions as a mechanism for risk sharing among a group, where all insured individuals pay premiums to cover potential losses.
Moral hazard can arise when individuals feel less inclined to avoid risks due to the security insurance provides. Insurance companies face challenges due to imperfect information, making it difficult to estimate individual risks and potentially leading to adverse events.