C. Perils and Hazards

Perils are the causes of loss insured against in an insurance policy.

• Life insurance insures against the financial loss caused by the premature death of the insured;
• Health insurance insures against the medical expenses and/or loss of income caused by the insured's sickness or accidental injury;
• Property insurance insures against the loss of physical property or the loss of its income-producing abilities;
• Casualty insurance insures against the loss and/or damage of property and resulting liabilities.

Hazards are conditions or situations that increase the probability of an insured loss occurring. Hazards are classified as physical hazards, moral hazards, or morale hazards. Conditions such as lifestyle and existing health, or activities such as scuba diving, are hazards and may increase the chance of a loss occurring.

Physical hazards are individual characteristics that increase the chances of the cause of loss. Physical hazards exist because of a physical condition, past medical history, or a condition at birth, such as blindness.

Moral hazards are tendencies towards increased risk. Moral hazards involve evaluating the character and reputation of the proposed insured. Moral hazards refer to those applicants who may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

Morale hazards are similar to moral hazards, except that they arise from a state of mind that causes indifference to loss, such as carelessness. Actions taken without a forethought may cause physical injuries.

A legal hazard describes a set of legal or regulatory conditions that affect an insurer's ability to collect premiums that are commensurate with (equal to in value) the exposure to loss that the insurer must bear.