What Is The Distinction Between A Hazard And A Peril?

The terms hazards and perils are sometimes used interchangeably when referring to insurance, particularly when contrasting the various risks considered by the consumer and the insurer. The two words are similar even though they refer to different things and have different meanings. Each phrase has a use and can even be further divided into numerous subcategories.

Any situation that could result in financial loss is a risk. Examples include vehicle accidents, fatalities, illnesses, disabilities, fires, floods, thievery, etc. A hazard is something that makes a peril more likely to happen. Examples include slick walkways following a winter, impaired driving, leaving your home's doors unlocked, etc. So succinctly:

Risk is the likelihood or threat of suffering damage, harm, liability, loss, or any other adverse event.

• Risk is the root of loss
• A hazard is a circumstance that makes loss more likely
• Therefore, dangers raise the risk of certain perils
• Hazards and Risks in Insurance

A hazard is often defined as anything that raises the possibility of risk, which is an unintentional, unanticipated event that injures an insured person or causes damage to property. In the insurance industry, there are four basic kinds of risks:

• Physical Risks
• Legal Risks
• Moral Dangers
• Morale Dangers

Physical hazards increase the likelihood that a risk will occur due to deficiencies in the state, makeup, or use of an insured person or covered property, which may result in a loss. For instance, a rooftop coated in a thick layer of snow poses a physical risk to the property owner's safety. When you think about medical insurance, you have yet another excellent example. An underlying physical risk would be a congenital heart problem.

Legal Hazards: For the ordinary insurer, a legal hazard is an increase in the likelihood that a loss may result from legal action, which would prompt a lawsuit or other kinds of litigation. For instance, the American judicial system encourages many people to file lawsuits with the intention of receiving potentially significant settlements or awards. Any potential litigation, including one from an insurer, is seen as a real threat.

Moral Hazards - As the name might imply, a moral hazard results from fraud committed by an insured person. Examples include making fictitious insurance claims or lying on a life insurance application with the intention of obtaining a range of the best possible conditions.