What are "peril" and "hazard" in insurance terminology?

In insurance terminology, a peril refers to the specific cause of loss or damage that an insurance policy covers. Examples of perils include fire, theft, windstorm, and flood. On the other hand, a hazard is a condition or situation that increases the likelihood of a peril occurring, making it more probable for a loss to happen. Hazards can be physical, such as a worn-out electrical wiring that increase the risk of fire, or they can be moral, involving individuals’ attitudes that might increase the chance of a loss, such as intentional negligence.

Understanding the distinction between peril and hazard is crucial for insurance professionals when evaluating risks and underwriting policies. By identifying perils and associated hazards, insurers can more effectively price coverage and manage risks. This clear distinction is why the statement that defines peril as a specific risk of loss and hazard as a factor that increases that risk is the most accurate in this context.