Which of following provisions in an insurance policy may be economically efficient if policy holders can control small claims but not large ones?
A)Vigilance provision
B)Non-price exceptions
C)Co-payment provisions
D)Liquidated damages

Question

Quizplus · Accepted Answer

A co-payment provision requires policyholders to pay a portion of the claim, which can make them more vigilant about filing small claims. However, for large claims, the co-payment amount may still be too high for them to control. This means that policyholders are more likely to file large claims, which can lead to increased costs for insurance providers. Therefore, a co-payment provision can be economically efficient for insurers as it can encourage policyholders to be more careful about filing small claims while protecting insurers from excessive costs associated with large claims.

Which of Following Provisions in an Insurance Policy May Be