Which term is the cause of the loss insured against in an insurance policy?

Which term is the cause of the loss insured against in an insurance policy?

• A. Hazard
• B. Speculative risk
• C. Peril
• D. Life insurance

Answer: (C)

The loss an insurance policy covers is caused by a peril—the specific event that leads to the damage or loss. Policies name which perils are insured against, such as fire, theft, or flood, and a payout occurs when a loss results from one of those listed perils. Hazard is a condition that makes loss more likely but isn’t the loss itself, so it isn’t what the policy pays for. Speculative risk involves chances of both gain and loss and isn’t generally insurable, and life insurance is a product type, not the term for the loss cause. Therefore, the cause of loss insured against is a peril.

The loss an insurance policy covers is caused by a peril—the specific event that leads to the damage or loss. Policies name which perils are insured against, such as fire, theft, or flood, and a payout occurs when a loss results from one of those listed perils. Hazard is a condition that makes loss more likely but isn’t the loss itself, so it isn’t what the policy pays for. Speculative risk involves chances of both gain and loss and isn’t generally insurable, and life insurance is a product type, not the term for the loss cause. Therefore, the cause of loss insured against is a peril.