Fire, lightning, windstorm, and theft are all examples of:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
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.