Georgia Adjuster Practice Test

In property insurance, what is considered a 'moral hazard'?

1. Poor maintenance of property

2. Deliberately misleading a company

3. Involuntary accidents

4. Increased risks due to negligence

The correct answer is: Deliberately misleading a company

In property insurance, a 'moral hazard' refers to the scenario where an individual's behavior characteristically changes with the presence of insurance coverage, leading them to take risks they otherwise would not take. This form of hazard arises from attitudes or behaviors that can lead to dishonest acts, such as deliberately misleading a company about the extent of property damage or loss. This means that the person may feel emboldened to act in ways that could result in claims, knowing they are covered, and thus potentially engaging in fraudulent behavior to benefit from the insurance policy. The other options relate to different types of risks but do not fit the definition of a moral hazard. Poor maintenance would relate more to physical hazards that increase the likelihood of damage or loss. Involuntary accidents imply that the event occurs without intention or premeditated action, thus not constituting moral hazard. Increased risks due to negligence focus on carelessness rather than intentional behavior motivated by the presence of insurance. Thus, the characteristic of deliberately misleading the company firmly aligns with moral hazards in the context of property insurance.