A hazard is a circumstance that increases the chance of a loss. Insurers identify three kinds of hazards:
- Physical Hazard — An increased chance of loss due to external circumstances which are independent of human behavior (e.g. weather; birth defects).
- Morale Hazard — An increased chance of loss due to someone’s carelessness (e.g. the increased chance of an accident because of bad driving; unhealthy eating; making bad choices).
- Moral Hazard — An increased chance of loss due to someone’s lack of character or trustworthiness (e.g. lying, cheating, stealing, arson, intentional wrong).
A way to remember the difference between morale and moral is by saying, “morale with an E is stupidity.”