Life & Health Insurance Exam (National Portion)Underwriting and Policy IssueMedium
During the underwriting process, the underwriter discovers that an applicant for a disability income policy has previously filed multiple claims for minor injuries, despite having no major health issues. This pattern indicates a potential for which type of hazard?
- AMorale hazard.
- BMoral hazard.
- CLegal hazard.
- DPhysical hazard.
Show answer & explanationAnswer & explanation
Correct answer: A. Morale hazard.
Morale hazard refers to an increase in the probability of loss due to an individual's indifferent attitude towards loss, often stemming from carelessness or a reckless attitude, knowing that insurance will cover the costs. Filing multiple minor claims without serious underlying issues suggests such an attitude.
Why the other options are wrong
- B. Moral hazard relates to dishonesty or fraudulent intent, not carelessness.
- C. Legal hazard relates to legal system characteristics that increase risk, such as lawsuits.
- D. Physical hazard relates to physical characteristics increasing risk, like a bad heart.
Morale Hazard
An increase in the probability of loss due to an individual's indifference or carelessness concerning loss, because they know they are insured.
- Indifference or carelessness.
- Not intentional fraud.
- Example: frequently filing minor claims.
Memory trick: Hazards are like problem-makers: some are physical, some are mean, some are just careless.