South Carolina Life Insurance Practice Exam

What is the term for a factor that can lead to a loss?

1. Hazard

2. Peril

3. Claim

4. Exposure

The correct answer is: Peril

The term that correctly describes a factor that can lead to a loss is known as "hazard." This term refers to a condition or situation that increases the likelihood of a loss occurring. Hazards can take many forms, such as physical hazards (like icy roads) or moral hazards (like increased risk-taking behavior due to insurance coverage). In the context of insurance, understanding hazards is crucial because they help insurers assess the risk associated with insuring individuals or properties. Peril, on the other hand, refers to the actual cause of loss or damage, such as fire, theft, or natural disasters. Claims are requests made by policyholders to their insurer for payment under the terms of their policy after a loss occurs. Exposure pertains to the potential risk of loss evaluated by insurers, often calculated in terms of the financial implications of risks over time. While all these terms are relevant in the field of insurance, "hazard" specifically pertains to the conditions that can lead to a loss.