Which term describes dishonest tendencies that increase the probability of a loss?

• A. Speculative Risk
• B. Moral Hazard
• C. Peril
• D. Insurance

Answer: (B)

Moral hazard describes dishonest tendencies that increase the likelihood of a loss. It happens when the existence of insurance changes a person’s behavior, making them less careful or more prone to risky actions because losses are covered. For example, someone might neglect maintenance or take greater risks in driving or security since they know the insurer will bear the cost. This concept focuses on behavior after obtaining insurance and how that behavior raises risk, which is why it’s distinguished from the actual causes of loss (perils), the types of risk (speculative risk), or the insurer’s contract itself (insurance).