Which term describes a non-physical factor that increases the probability of loss due to the insured's actions or character?

Which term describes a non-physical factor that increases the probability of loss due to the insured's actions or character?

• A. Hazard
• B. Moral Hazard
• C. Physical Hazard
• D. Morale Hazard

Answer: (B)

Moral hazard describes non-physical factors tied to the insured’s behavior or character that raise the chance of a loss after coverage is in place. When someone is insured, their actions can change—for example, taking bigger risks, neglecting precautions, or even exaggerating a claim—because the financial consequence is softened by insurance. This is a behavioral or character-based risk, not a tangible condition of the property or situation. This differs from a physical hazard, which involves a measurable, real-world condition like a slippery sidewalk or faulty wiring, and from morale hazard, which is a careless attitude brought on by the presence of insurance rather than a change in the insured’s character or actions. The focus here is on how the insured’s behavior or character increases risk, which is the essence of moral hazard.

Moral hazard describes non-physical factors tied to the insured’s behavior or character that raise the chance of a loss after coverage is in place. When someone is insured, their actions can change—for example, taking bigger risks, neglecting precautions, or even exaggerating a claim—because the financial consequence is softened by insurance. This is a behavioral or character-based risk, not a tangible condition of the property or situation.

This differs from a physical hazard, which involves a measurable, real-world condition like a slippery sidewalk or faulty wiring, and from morale hazard, which is a careless attitude brought on by the presence of insurance rather than a change in the insured’s character or actions. The focus here is on how the insured’s behavior or character increases risk, which is the essence of moral hazard.