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Question

Difficulty: EasyPerils and Hazards

Match each insurance risk scenario to the correct peril or hazard classification.

  • A hurricane that damages a coastal property.Peril
  • A frayed electrical cord running under a rug.Physical Hazard
  • Faking an auto accident to collect an insurance payout.Moral Hazard
  • Leaving a vehicle running and unlocked while inside a store.Morale Hazard

Answer

A hurricane is a Peril; a frayed electrical cord is a Physical Hazard; faking an auto accident is a Moral Hazard; and leaving a vehicle running and unlocked is a Morale Hazard.
A peril is the direct, active cause of loss, such as a hurricane. A hazard is a condition that increases the chance of loss. Physical hazards are structural or tangible conditions like a frayed cord. Moral hazards involve dishonest character or intentional fraud, such as faking an accident. Morale hazards involve careless attitudes, such as leaving a car running and unattended.

Step-by-Step Solution

1
Analyze the 'hurricane' scenario.
Identify it as a direct cause of loss.
A peril is defined as the actual cause of a loss (e.g., windstorm, fire, hurricane).
2
Analyze the 'frayed electrical cord' scenario.
Identify it as a tangible condition that increases risk.
Physical hazards are structural, environmental, or material conditions that increase the likelihood of a peril.
3
Analyze the 'faking an auto accident' scenario.
Identify it as a dishonest and fraudulent act.
Moral hazards arise from the insured's character and a conscious desire to defraud the insurer.
4
Analyze the 'leaving a vehicle running and unlocked' scenario.
Identify it as an attitude of carelessness.
Morale hazards arise from a state of mind or indifference to loss, often because the property is insured.

Key Concept

Distinguishing between perils (causes of loss) and the three distinct types of hazards (physical, moral, and morale).
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Topics

Perils and Hazards

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