Pennsylvania Property And Casualty License Practice Exam

The correct term that describes an increase in the chance of loss is hazard. In the context of insurance and risk management, a hazard refers to a condition or situation that increases the likelihood of a peril occurring. Hazards can be physical (like an unsafe building), moral (like fraud), or legal (such as liability issues), and they create circumstances that elevate the risk of loss.

Risk, on the other hand, is the broad concept of uncertainty about financial loss, which encompasses the existence of potential for loss without specifying the nature of that potential. Perils are specific causes of loss, such as fire, theft, or natural disasters. Insurance is a financial product designed to mitigate risk by providing compensation for losses under certain conditions, but it does not define the increase in the chance of loss itself. Understanding these distinctions is key to grasping foundational insurance concepts.