- adverse selection
- when groups with inherently higher risks than the average person seek out insurance, thus straining the insurance system
- asymmetric information
- a situation where the seller or the buyer has more information than the other regarding the quality of the item being sold
- coinsurance
- when an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost
- collateral
- something valuable—often property or equipment—that a lender would have a right to seize and sell if their loan is not repaid
- copayment
- when an insurance policyholder must pay a small amount for each service before insurance covers the rest
- cosigner
- another person or firm who legally pledges to repay some or all of the money on a loan if the original borrower does not do so
- deductible
- an amount that an insurance policyholder must pay out of their own pocket before the insurance coverage pays anything
- fee-for-service
- when medical care providers are paid according to the services they provide
- health maintenance organization (HMO)
- an organization that provides health care and is paid a fixed amount per person enrolled in the plan, regardless of how many services are provided
- imperfect information
- a situation where either the buyer and/or the seller are uncertain about the qualities of what is being bought and sold
- insurance
- a method of protecting a person from financial loss, whereby policyholders make regular payments to an insurance entity; the insurance firm then remunerates a group member who suffers significant financial damage from an event covered by the policy
- money-back guarantee
- a promise that the buyer’s money will be refunded under certain conditions
- moral hazard
- when people have insurance against a certain event, they are less likely to guard against that event occurring
- occupational license
- a license issued by government agencies, which indicate that a worker has completed a certain type of education or passed a certain test
- premium
- a payment made to an insurance company
- risk group
- a group that shares roughly the same risk of an adverse event occurring
- service contract
- a seller agrees to fix anything specified in the contract that goes wrong for a set time period; the buyer pays an extra amount for this
- warranty
- a promise to fix or replace a good for a certain period of time