Which statement distinguishes perils and hazards?

• A. A peril is the actual cause of loss; a hazard is a condition that increases loss likelihood.
• B. A hazard is the actual cause of loss; a peril is a condition that increases loss likelihood.
• C. Peril and hazard are the same; both are conditions leading to loss.
• D. A peril is limited to natural disasters.

Answer: (A)

Perils are the actual events that cause a loss, while hazards are conditions that increase the likelihood of a loss occurring. This distinction matters because reducing hazards can lower the chance that a peril leads to damage or injury. For example, fire is a peril; faulty wiring, cluttered storage, or lack of smoke detectors are hazards that raise the risk of a fire causing damage. Hazards can be physical (like a wet floor), moral (dishonesty), or morale (carelessness), and they don’t by themselves cause a loss but make losses from a peril more likely. The statement that a peril is the actual cause of loss and a hazard is a condition that increases loss likelihood captures this relationship. The other ideas—hazard being the actual cause, peril and hazard being the same, or perils limited to natural disasters—don’t fit how these terms are used in insurance.