Property Insurance Concepts

Property Concept - Perils and Hazards

A Peril is something that causes the loss. Examples of perils are: fire, lightning, flood, and death. An insurance policy lists the perils covered under the policy. These are known as “covered perils” or covered losses.

A hazard is something that increases the probability that a loss will occur or a hazard can increase the severity of the loss. There are three types of hazards.

The first type is a physical hazard. A physical hazard is a physical characteristic that causes a loss. A broken smoke detector is a physical hazard because it is could increase the severity of a fire (the peril).

A moral hazard is a conscious act that may cause a loss to occur. An example of a moral hazard is arson – setting a house on fire.

The third hazard is a morale hazard. This hazard is an unconscious act that may cause a loss to occur. Smoking in bed is an example of a morale hazard.

All three hazards could result in a covered peril (fire). The insurance company could determine that a home surrounded by heavy forest would be a high risk for fire.

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Something that causes a loss is a ____.