General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A disability claimant deliberately exaggerates the severity of an injury to collect a larger benefit. This behavior is best classified as a:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A moral hazard arises from dishonest character or fraudulent intent — the insured deliberately misrepresents facts to gain an advantage. Exaggerating an injury to inflate a claim is a classic moral hazard. Insurers control moral hazards through application questions, claim investigation, fraud penalties, incontestability limits, and exclusions for intentional acts. Moral hazard differs sharply from morale hazard (carelessness) and physical hazard (a tangible condition).
Why the other options are wrong
- B) A morale hazard is indifference or carelessness that develops because insurance exists, such as not locking a door; deliberate fraud is dishonesty, not carelessness.
- C) A physical hazard is a tangible, objective condition; dishonesty is a matter of character, not physical condition.
- D) A peril is the cause of the covered loss, such as an accident or illness; fraud is a hazard affecting the likelihood or size of loss.
Memory hook
Moral = the liar with a pen and a plan. Morale = the slacker who can't be bothered.