Other Insurance terms

Peril

You’ve learned that risk is the uncertainty of loss. A peril is the cause of loss. Fire and collision are both examples of perils

Hazard

Now that you understand the difference between risk and peril, let’s discuss another important term: hazard. A hazard is anything that increases the  chance of loss

Physical, Morale, and Moral Hazards

There are three different types of hazards

A physical hazard is a hazard that arises from the condition, occupancy, or use of the property itself. An example of a physical hazard is a skateboard left on the porch steps

The second type of hazard is called a morale hazard. This means that an individual, through carelessness or by irresponsible actions, can increase the possibility for a loss. An example of a morale hazard is a person who drives a car carelessly because he knows a loss will be insured if an accident occurs

The third type of hazard, closely related to the morale hazard, is the moral hazard

 A moral hazard means that a person might create a loss situation on purpose just to collect from the insurance company

 An example of a moral hazard is a prearranged, faked theft of an older vehicle so the owner could collect the insurance money and buy something new