in massachusetts, there are many private companies selling life insurance at competative prices but no one...

in massachusetts, there are many private companies selling life insurance at competative prices but no one sells inckme insurance to protect people from losing their jobs or being forced to take work at signifigantly lower earnings. why do competative markets work better for life insurance than for income insurance?

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Expert Solution

Insurance against a life is a uniform product that creates perfect competition, whereas the insurance against income varies from person to person so it has to be different for each consumer. So, insurance against life is awarded at competitive prices. Besides, there are higher scope of adverse selection and moral hazard when a person is willing to go for the insurance against the income as people can intentionally lose jobs or take the lower income jobs to avail the insurance benefits, but such benefits due to adverse selection or moral hazard behavior, cannot be availed in insurance against the life. So, life insurance as a product can be sold with less scope of adverse selection and at competitive prices as the product is uniform in nature.

Rahul Sunny answered 1 year ago

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