General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
Which of the following is a policy or regulatory device specifically designed to help insurers control moral hazard?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Moral hazard is dishonesty that surfaces when insurance exists — fabricated or exaggerated claims, concealment, and intentional self-injury. Insurers and regulators answer with tools that raise the cost of dishonesty: incontestability provisions that give the insurer a limited window to challenge misrepresentation, criminal and civil fraud penalties under California law, careful claim investigation, and exclusions for intentionally caused losses. Each device makes fraud or carelessness expensive for the insured and preserves the integrity of the pool.
Why the other options are wrong
- B) Forcing larger benefits would magnify, not control, the temptation to exaggerate claims.
- C) Beneficiary change rules relate to ownership rights, not to deterring dishonest claims.
- D) Dropping medical questions would remove the insurer's early screening tool and invite concealment — the opposite of controlling moral hazard.
Memory hook
Fraud checks, contestability windows, and intentional-injury exclusions are the anti-dishonesty toolkit.