General Concepts

Adverse Selection

Adverse selection occurs when people with a greater likelihood of loss are more motivated to buy or maintain insurance, skewing the risk pool toward worse-than-average outcomes.

Last reviewed: May 2026 · Editorial methodology

Definition

Adverse selection arises from information asymmetry: the applicant knows more about their own risk than the insurer does. For example, someone who has already been diagnosed with a chronic illness is far more likely to purchase health insurance than a perfectly healthy person who feels invincible. If left unchecked, adverse selection causes premiums to rise because the pool fills with high-risk members, which then drives away healthier, low-risk members — a cycle known as a 'death spiral.' Insurers counter adverse selection through medical underwriting, waiting periods, pre-existing condition clauses, and mandatory enrollment windows. The Affordable Care Act addressed adverse selection in health insurance partly by requiring most Americans to maintain coverage and by prohibiting denial based on pre-existing conditions, funded by a larger mandatory pool.

Where this term matters

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Tip

Glossary definitions are educational. Always check your own policy language — insurers can define common terms differently from one another. When in doubt, request a written explanation from your agent.

Related terms

Risk PoolA risk pool is the collective group of insured individuals or entities whose premiums are aggregated so that the losses of the few are paid by the contributions of the many.UnderwritingThe insurer's process of assessing risk and setting price — or declining to offer coverage.Waiting PeriodA delay after policy purchase before certain benefits become active (e.g. pet illness, dental major).Moral HazardMoral hazard describes the behavioral change — usually toward greater carelessness or deliberate misconduct — that can occur when insurance removes the financial sting of a bad outcome.
Source: Cover Forge USA editorial team|Last verified: May 2026|Methodology
Definitions are educational and may be simplified. Always refer to your policy contract and consult a licensed agent for terms that affect coverage decisions.
CF

Cover Forge USA Editorial Team

Editorial Lead

This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.

Reviewed June 2026

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