In health and disability insurance, a peril is best defined as:

Why A is correct

A peril is the event that actually causes a loss; in the accident and health context that means an illness, an accident, or an injury. Peril must be distinguished from hazard, which is a condition that increases the likelihood of loss, and from loss, which is the financial consequence that follows the event. The policyholder's attitude toward filing claims describes moral or morale hazard rather than peril. Identifying the peril is fundamental to determining what an accident and health policy actually covers.

Why the other options are wrong

• B) A condition that increases the chance of loss is a hazard, not a peril.
• C) The financial amount of the loss is the loss itself, which is the result of the peril rather than its cause.
• D) The policyholder's attitude toward filing claims describes moral or morale hazard, not peril.

Memory hook

Peril is the spark; hazard is the kindling; loss is the burnt wallet.

Why A is correct

Fire, lightning, windstorm, and theft are perils — the actual causes of loss that trigger a policy's obligation to pay. A peril is the specific event that damages the insured, and insurance policies are organized around the perils they name: a homeowners policy, for example, lists covered perils such as fire and wind and pays only for losses caused by those events. Distinguishing perils from hazards is essential to underwriting and claims, because the peril defines what happened while the hazard explains why it was more likely. A hazard is a condition, such as oily rags near a furnace, that increases the chance or severity of a peril's occurrence.

Why the other options are wrong

• B) Hazards are conditions that increase the chance or severity of a loss, such as oily rags near a furnace or a habit of careless driving; they are circumstances that feed a peril, not the causes of loss themselves.
• C) Loss exposure is the potential for financial loss that a person or organization faces — the size of the target at risk — not the specific event, such as fire or theft, that causes the loss.
• D) Speculative risks carry a chance of gain or loss, such as starting a business or gambling; fire, lightning, windstorm, and theft offer only a chance of loss, making them pure risks, not speculative ones.

Memory hook

Peril is the fire that starts the loss; hazard is the oily rag that feeds it.