California Life-Only & Accident and Health AgentGeneral InsuranceMedium
A life insurance applicant intentionally withholds information about a pre-existing heart condition on their application. This action is an example of:
- AMoral Hazard
- BSubrogation
- CAdverse Selection
- DInsurable Interest
Show answer & explanationAnswer & explanation
Correct answer: A. Moral Hazard
Moral hazard refers to the increased probability of loss occurring due to an insured's dishonest tendencies or character. Intentionally withholding information about a pre-existing condition fits this definition.
Why the other options are wrong
- B. Subrogation is the insurer's right to seek recovery from a third party responsible for a loss.
- C. Adverse selection is the tendency of less favorable risks to seek or continue insurance coverage.
- D. Insurable interest is the financial stake one has in the subject of insurance.
Moral Hazard
A moral hazard is the increased chance of loss due to an insured's dishonest tendencies or character, often involving intentional misrepresentation or concealment.
- Arises from an individual's character or dishonesty.
- Increases the likelihood of a loss.
- Distinguished from morale hazard (carelessness).
Memory trick: Hazards can be physical, moral, or morale – remember the 'M's for mind and misconduct.