Insurance Perils and Hazards Quiz

Peril

• Peril is the cause of loss
• Some common perils are: fire, cyclone, storm, flood, lightning, earthquakes, malicious damage, theft and burglary
• Only these events can be insured against

Hazard

• A hazard increases the chance of a peril event
• There are three main types of hazards:
  • Physical: A physical condition that increases the chance of loss
  • Moral: Occurs when an insured person tries to cause a loss to gain from insurance
  • Morale: Occurs when an insured person becomes careless because of the existence of insurance

Moral Hazard

• It involves unethical or immoral behaviour by an insured person
• It arises when both parties have incomplete information about each other
• It is present in all types of insurance

Morale Hazard

• Morale hazard arises due to carelessness or indifference to a loss because of insurance
• The presence of insurance causes an insured to be careless about protecting their property
• It differs from moral hazard in that it lacks the intent to gain from insurance

Principle of Utmost Good Faith

• This principle applies to all insurance contracts.
• It requires that a higher standard of honesty be imposed on parties to an insurance agreement
• This principle sets a different light on the interpretation of insurance agreements compared to general business contracts

Types of Insurance

• Life and health
• Property
• Public liability
• Business interruption
• Fire, burglary and theft insurance
• Marine insurance
• Motor vehicle insurance
• Workers compensation

Life Insurance

• It reduces the financial impact of death or serious contingencies that affect income
• The level of life insurance is based on the needs of dependents
• There is a risk of underinsurance in Australia

Life Insurance Regulation

• It is subject to considerable regulation including requirements for providers to hold a licence

Life Insurance Providers

• Some key insurance providers are: AIA Australia Limited, Allianz Australia Limited, AMP Limited, Challenger Life Company Limited, MLC Limited, Munich Reinsurance Company of Australasia Limited, The National Mutual Life Association of Australasia Limited, Zurich Australia Limited
• The 'big 4' banks (ANZ, CBA, NAB and Westpac) also hold licences

Parties to a Contract of Life Insurance

• Policy Owner: Pays for the policy and acts as a guarantor.
• Insured Life: The person whose life is insured.
• Beneficiary: The person or people who receive the insurance payout.
• Life Office: The insurance company.

Income Protection Insurance

• Provides protection against loss of income due to permanent or temporary disablement.
• It has a trauma insurance 'add-on'

Key Person Insurance

• Alleviates financial loss to a business due to the death or disability of a key employee.
• It is paid for and owned by the business.

Buy-Sell Agreement

• A contract between business partners that compels remaining partners to buy out the other partner's interest in the business upon a specific event.
• These events may include death, divorce, long-term disability, retirement or bankruptcy.

Total and Permanent Disability (TPD) Insurance

• Provides financial cover in the event that the insured is unable to perform any work for six consecutive months.
• There are three occupation definitions: Standard, Own, and Homemaker.

Trauma Insurance

• Provides financial cover in the event of a specified medical catastrophe.
• 92% of all trauma claims arise from heart attack, stroke, cancer and heart surgery.
• It can be packaged with TPD or as a stand-alone.

Other Types of Insurance for Individuals

• Motor vehicle insurance
• Private property (especially real estate) insurance
• Landlord's insurance
• Recreational insurance

Test your knowledge on the concepts of peril and hazard in insurance. This quiz covers the definitions, types of hazards, and the differences between moral and morale hazards. Understand how these elements affect insurance coverage and claims.