State Farm Insurance License Practice Exam

Question: 1 / 400

What defines a morale hazard in insurance?

Intentional damage to property

The tendency to take unnecessary risks

Hazard arising from irresponsible actions or carelessness

A morale hazard in insurance is defined as the increased tendency of an individual to take unnecessary risks, typically due to a lack of concern or a sense of indifference that arises from having insurance coverage. This behavior is often a result of the insured's confidence in their financial protection against loss, leading to potentially reckless or careless actions that could result in a claim against the policy.

In this context, options that suggest intentional actions or threats, such as deliberate damage to property or negligence, do not accurately capture the essence of a morale hazard. Instead, it's specifically connected to the mindset and behavior of the insured in regards to their insured assets or interests. Recognizing this distinction is crucial for understanding how different types of hazards impact insurance risk and underwriting processes.

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A direct threat to property due to negligence

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