It Pays Out When . . .

Health insurance

Employers and individuals

Medical expenses are incurred

Life insurance

Employers and individuals

Policyholder dies

Automobile insurance

Individuals

Car is damaged, stolen, or causes damage to

others

Property and homeowner’s

insurance

Homeowners and renters

Dwelling is damaged or burglarized

Liability insurance

Firms and individuals

An injury occurs for which you are partly

responsible

Malpractice insurance

Doctors, lawyers, and other

A poor quality of service is provided that causes

professionals

harm to others

TABLE 16.1 Some Insurance Markets

All insurance involves imperfect information in both an obvious way and in a deeper way. At an obvious level,

we cannot predict future events with certainty. For example, we cannot know with certainty who will have a car

accident, become ill, die, or have his home robbed in the next year. Imperfect information also applies to
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