Which term describes an event that causes a direct loss?

• A. Exposure
• B. Peril
• C. Moral Hazard
• D. Pure Risk

Answer: (B)

Peril is the event that causes a direct loss. It’s the specific occurrence that leads to damage or financial loss, such as fire, flood, theft, or a car crash. Exposure, by contrast, is the potential for loss—the vulnerability or chance that loss could happen, like owning a home in a flood zone. Moral hazard refers to changes in behavior that increase the chance of loss because insurance is present. Pure risk describes a situation with only the possibility of loss or no loss, not the initiating event itself. So, when asked for the term describing the event that causes a direct loss, peril is the best fit.