Final answer:
A person is often required to buy insurance when using a mortgage to buy a home, as homeowner's insurance is typically mandated by banks. State laws also commonly require car owners to have auto insurance. The enforcement of insurance purchasing helps mitigate adverse selection in insurance markets.
Step-by-step explanation:
A person can be required to buy insurance in several situations. A common situation is when using a mortgage to buy a home; banks typically require the borrower to obtain homeowner's insurance. This type of insurance protects the property against damages such as fire or hailstorms. The requirement to purchase insurance helps to prevent a situation known as adverse selection, where only those at high risk would choose to buy insurance, which could lead to higher costs for insurers and consumers alike.
When it comes to auto insurance, most states legally mandate car owners to have coverage. This government intervention is designed to ensure that all drivers have financial protection against accidents. Although there are laws mandating the purchase of certain insurances, insurance companies are not forced to provide insurance to everyone, particularly to those with high risks, at low cost.