A company owns a fleet of delivery trucks that could be damaged in accidents. In insurance terms, the trucks represent:
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
A loss exposure is the possibility of financial loss to which a person or entity is subject. The trucks are assets exposed to the possibility of accident losses, so the fleet is a loss exposure. Identifying loss exposures is the first step in risk management, after which the owner can decide whether to avoid, retain, share, reduce, or transfer the risk. The trucks themselves are the exposed property; they are not the carelessness that increases loss likelihood, they are not the accident event that causes the loss, and the exposure involves only the chance of loss rather than a chance of gain.
Why the other options are wrong
- A) A morale hazard is carelessness that develops because insurance exists, such as failing to secure a vehicle after buying coverage. The trucks are not an attitude but exposed property. The correct answer follows from the controlling authority, which this option does not follow.
- B) A peril is the actual cause of loss, such as an accident or theft. The trucks are the assets exposed to loss, not the cause of the loss. This common misconception is exactly what the governing rule rejects, so the option is incorrect.
- D) A speculative risk offers a chance of gain or loss, such as an investment. The truck fleet involves only the possibility of loss, making it a pure risk exposure. This contradicts the governing rule explained above and therefore cannot be the correct answer.
Memory hook
Loss exposure is what is at stake. The trucks are exposed to loss, not the cause or the carelessness.