Which term describes a condition that increases the likelihood of a loss?

• A. Risk
• B. Hazard
• C. Peril
• D. Policy

Answer: (B)

A hazard is a condition that increases the likelihood of a loss. It isn’t the loss itself or the actual event that ends up causing the damage, but a factor that makes a loss more probable. For example, leaving a door unlocked is a hazard because it raises the chance of theft, and frayed wiring is a hazard that raises the risk of a fire. The actual event that causes a loss is the peril (like fire or theft), while risk refers to the overall chance (and sometimes the potential severity) of a loss. A policy is simply the insurance contract that outlines what’s covered. So the term that best fits “a condition that increases the likelihood of a loss” is hazard.