Perils and Hazards

4 types of hazards

1. Physical 2. Moral 3. Morale 4. Legal

Perils

Cause of a loss

Moral Hazards

Character defects that allow insured people to be dishonest and intentionally cause or exaggerate loss

Legal Hazards

Characteristics of legal system that increase the frequency or severity of loss

Examples of perils

Fire, windstorm, theft, explosion, riot

Examples of physical hazards

Icy steps, faulty wiring

Morale Hazards

Insured's indifference to loss because of the existence of insurance. Careless neglect that increases the chance of loss

Is insurance gambling?

No. Insurance transfers risk to insurance company. Gambling creates a new speculative risk.

Physical Hazards

Physical conditions that increase the chance of loss

Hazard

Something that increases the likelihood or probable severity of loss

Examples of hazards

Storing gasoline in basement increases severity of loss if there is a fire (peril)