PSI Life Exam Practice Test

What term describes events or conditions that increase the likelihood of an insured's loss?

1. Perils

2. Risk factors

3. Hazards

4. Liabilities

The correct answer is: Hazards

The term that describes events or conditions that increase the likelihood of an insured's loss is "hazards." Hazards refer to anything that can create or increase the chances of a loss occurring. They can take various forms, including physical hazards (e.g., a slippery floor), moral hazards (e.g., dishonesty), and morale hazards (e.g., carelessness). Understanding hazards is crucial in the context of insurance because they help insurers assess the level of risk associated with an individual or property. By recognizing and evaluating these hazards, insurers can make informed decisions regarding coverage, premiums, and the overall management of risks. The other terms listed have distinct meanings: perils are the actual events causing loss (like fire or theft), risk factors relate more to specific conditions affecting risk assessments, and liabilities refer to legal responsibilities or obligations in financial terms. Thus, while these concepts are important in the insurance context, they do not specifically describe the conditions that increase the likelihood of an insured's loss in the same way that hazards do.