Certified Financial Consultant (CFC) Practice Exam

In insurance terminology, which of the following is typically linked to the likelihood of an event occurring?

1. Peril

2. Hazard

3. Risk

4. Exposure

The correct answer is: Hazard

The correct choice is often associated with the likelihood of an event occurring in the context of insurance terminology. Hazards are conditions or situations that increase the probability of a loss happening. They can be classified into different categories such as physical hazards (like a dangerous road condition), moral hazards (like dishonesty in a claim), and morale hazards (like carelessness due to insurance coverage). The presence of a hazard means there is an increased risk, which insurance underwriters assess when determining premiums and coverage. While peril refers to the specific events that may cause a loss (like fire or theft), and risk encompasses the overall chance of loss occurring, hazards specifically address the factors that influence that risk by increasing or decreasing the likelihood of a peril manifesting. Exposure, on the other hand, refers to the extent to which an individual or entity is vulnerable to loss. Thus, hazards uniquely encompass the conditions that directly augment the chances of an event occurring.