What is the definition of Moral Hazard?

Moral Hazard, in insurance terms, refers to the possibility that an individual will perform acts that will affect his insurability. These comprise the person's character and actions - which will have a strong impact on his health, his propensity to meet with accidents of different types. The insurance company looks at moral hazard to see whether a person will provide an attractive business prospect or not.  It also is an important consideration as the insurance company decides whether it will take on his risks (insure him) or not.

Moral Hazard may also be used to describe an insurance applicant's propensity to hide information that may cause the application to be rejected.

For instance, the insurance company finds out that the applicant (in a previous application) stated that he smokes and hid this fact in the current application. This points to the possibility that the applicant will not act in good faith in other matters related to the insurance policy and coverage. It is then the insurance company's underwriter to appraise whether the moral hazard is within a range that is acceptable to the company.

• Insolvency
• Misstatement of Age or Sex Provision
• Modified Premium Policies
• Moral Hazard
• Comprehensive Coverage