Which statement best distinguishes peril from hazard?

• A. Peril is a condition increasing risk; Hazard is a cause of loss
• B. Peril is a cause of loss; Hazard is a condition increasing risk
• C. Peril is a policy term; Hazard is a deductible
• D. Peril is risk; Hazard is insurance coverage

Answer: (B)

Understanding the distinction between peril and hazard is essential in insurance. A peril is a specific event that causes a loss, such as a fire, theft, or wind damage. A hazard is a condition that increases the chances that a loss will occur or that its severity will be greater. Hazards can be physical (like exposed wiring), moral (dishonesty), morale (carelessness), or legal (issues with compliance). The key idea is that hazards influence risk, not the actual loss event itself; perils are the events that trigger losses.

So, the statement that peril is a cause of loss and hazard is a condition that increases risk captures the correct relationship. For example, an icy driveway is a hazard because it raises the likelihood of an auto accident, while the accident itself is the peril that causes the loss. Choices that mix up these roles — or that assign unrelated meanings to peril or hazard — don’t fit the definitions.