An applicant for disability insurance intentionally conceals a chronic back condition and later exaggerates symptoms to collect benefits. This conduct is best described as:

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.