General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
After purchasing a disability income policy, an insured becomes less diligent about following medical advice and postpones treatment because the insurance will pay anyway. This conduct is best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A morale hazard is carelessness or indifference that arises because insurance protection exists. This insured is not being dishonest; he is simply less careful because he knows the policy will soften the financial blow of a claim. Morale hazards are a cost of insurance that underwriters attempt to anticipate when pricing a risk. This conduct is distinct from a moral hazard, which involves deliberate dishonesty, and from a physical hazard, which is a tangible condition that increases the chance of loss.
Why the other options are wrong
- B) A moral hazard involves intentional fraud or dishonesty, such as faking a claim or inflating symptoms; mere carelessness is not a moral hazard.
- C) A physical hazard is a tangible condition, such as a hazardous workplace or a physical ailment.
- D) A peril is the event that causes a loss, not an attitude or a behavior.
Memory hook
Morale means who cares; moral means mendacious scheming behind the scenes.