An applicant for disability income insurance regularly races motorcycles on weekends. For underwriting purposes, the motorcycle racing is best described as:

Why A is correct

A hazard is a condition or activity that increases the probability or severity of a loss. Motorcycle racing is a hazardous avocation: it significantly increases the applicant's chance of suffering an injury that could trigger disability benefits. Underwriters respond by rating the risk, adding an exclusion, or declining coverage. The racing itself is not the cause of a particular loss (that would be a peril), and it is not the loss itself — it is a risk factor that makes the loss more likely.

Why the other options are wrong

• B) A peril is the actual event that causes the loss, such as the crash itself; the racing activity is the condition that increases the chance of a crash.
• C) The racing creates a real loss exposure for the insurer — the possibility of disability claims — so the insurer is very interested in it.
• D) The risk is not speculative in the sense of offering a chance of gain; it is a pure risk made more likely by the hobby, and insurers routinely rate it.

Memory hook

The race is a hazard until the crash; then the crash is the peril. Hazards come before perils.