After purchasing disability income coverage, an insured continues to engage in a risky hobby without taking reasonable precautions, reasoning that benefits will replace any lost income. This attitude is best classified as a:

Why A is correct

A morale hazard is carelessness or indifference that arises because insurance exists — the insured relaxes precautions because coverage will absorb the financial blow. Here, the insured is not trying to defraud the insurer; he simply neglects reasonable safety because disability benefits seem to protect his income. This unintentional neglect increases the chance of loss and is a recognized concern for insurers when they underwrite and manage risk.

Why the other options are wrong

• B) A moral hazard is intentional dishonesty, such as staging a loss or exaggerating a claim; this insured is careless, not fraudulent.
• C) A physical hazard is a tangible condition, such as a chronic illness or a workplace hazard; an attitude of neglect is not physical.
• D) Pure risk is a category of risk involving only the chance of loss; this scenario describes a behavioral hazard, not a risk classification.

Memory hook

Morale = 'it's covered, so why be careful?' Moral = 'I'll fake a claim.' Careless versus criminal.