Short Answer

Explaining Contract Incompleteness in Health Insurance

A health insurance company offers a policy to an individual. After the policy is active, the company cannot observe or verify the individual's day-to-day lifestyle choices, such as their diet, exercise frequency, or whether they engage in risky hobbies. Explain why the insurance contract is inherently 'incomplete' in this situation. In your explanation, identify the core problem for the insurer and why it's difficult to write a contract that covers these specific behaviors.

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Updated 2025-08-21

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