An underwriting report notes that a building has outdated wiring and that its owner is careless about maintenance. The outdated wiring and the owner's carelessness are respectively examples of a:

Why A is correct

A physical hazard is a tangible condition that increases the likelihood of loss — outdated wiring is an objective physical defect. A morale hazard is carelessness or indifference that develops because insurance coverage exists, such as neglecting maintenance. By contrast, a moral hazard is deliberate dishonesty, and a peril is the actual cause of loss such as fire. The pairing of a tangible defect with an attitude of indifference is therefore physical plus morale hazard.

Why the other options are wrong

• B) Outdated wiring is a hazard, not a peril; a peril is the actual cause of loss such as fire. Carelessness is an attitude, not a physical hazard.
• C) The labels are reversed: deliberate dishonesty would be a moral hazard; the owner's carelessness is a morale hazard, and wiring is physical, not moral.
• D) Carelessness is a morale hazard, but wiring is a physical hazard, not a peril.

Memory hook

Wiring you can touch = physical. Slacking because you are covered = morale. Scheming to burn it = moral.