Final answer:
The false statement about insurance is that it is a form of gambling. Unlike gambling, insurance is designed to manage and spread existing risks among a large group of people, and it is not speculative in nature.
Step-by-step explanation:
The false statement about insurance from the options provided is: B. It is a form of gambling because it may or may not pay off. Insurance is fundamentally a way of spreading risk and not a form of gambling. While both involve the potential for gain or loss, gambling creates a risk situation, whereas insurance is meant to provide financial protection from existing risks.
Insurance involves the pooling of large numbers of individual risks, which is a mechanism for reducing the risk faced by individuals. It is a social device for spreading loss over a large number of people, thereby lessening the financial burden on any single individual who suffers a loss. Insurance also transfers the risk from one party to a group, specifically from the individual policyholder to the insurance company which then distributes that risk across its pool of policyholders.
Moral hazard can arise in insurance markets because those who are insured may be less incentivized to avoid the costs associated with a risk. Insurance relies on the concept of shared risk based on actuarial data, not on the unpredictable and speculative nature of gambling.