California Life-Only & Accident and Health AgentGeneral InsuranceEasy
A marine shipping company experiences a sudden and unexpected storm that causes significant damage to one of its cargo vessels. This storm is an example of what insurance term?
- AHazard
- BRisk
- CPeril
- DLoss
Show answer & explanationAnswer & explanation
Correct answer: C. Peril
A peril is the cause of a loss. In this scenario, the storm is the direct cause of the damage to the cargo vessel, making it a peril.
Why the other options are wrong
- A. A hazard is something that increases the probability or severity of a loss, such as poor maintenance, not the cause of the loss itself.
- B. Risk is the uncertainty of a loss occurring, not the cause of the loss.
- D. Loss is the reduction, decrease, or disappearance of value, not the cause.
Peril
A peril is the actual cause of a loss.
- Examples include fire, theft, flood, storm, accident, illness.
- Insurance policies list the perils they cover.
- Distinct from hazards, which increase the likelihood or severity of a peril.
Memory trick: Peril is the punch, hazard is the slippery floor, risk is the uncertainty.