General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An applicant for disability insurance intentionally conceals a chronic back condition and later exaggerates symptoms to collect benefits. This conduct is best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
A moral hazard is dishonesty or fraud, meaning deliberate actions taken to create, conceal, or exaggerate a loss. Here the applicant deliberately hid a back condition and inflated symptoms, which is the classic moral hazard in disability insurance. Insurers control moral hazard through underwriting, medical record checks, and claims investigation. It is distinguished from a morale hazard, which is carelessness, and from a physical hazard, which is a tangible condition that increases the chance of loss.
Why the other options are wrong
- A) A morale hazard is carelessness that develops because insurance exists, not deliberate fraud.
- C) A physical hazard is a tangible condition that increases loss likelihood, such as poor health or a hazardous job.
- D) A fortuitous loss is accidental and unintended; this claim was deliberately manufactured by the applicant.
Memory hook
Moral hazard is the fraudster; morale hazard is the slacker.