In insurance terminology, how are peril and hazard differentiated?

The distinction between peril and hazard in insurance terminology is key to understanding how risks are evaluated and managed. A peril refers to a specific risk or event that can cause a loss, such as fire, theft, or natural disasters. It is essentially the incident or event that could lead to an insured loss.

On the other hand, a hazard is defined as a condition or situation that increases the likelihood of a peril occurring. Hazards can be physical conditions (like a frayed electrical cord that increases the risk of fire) or moral hazards, which involve behavior that could increase the chance of a claim (like dishonesty or negligence).

Thus, in the context of this question, identifying peril as the potential cause of loss while defining hazard as a condition that raises the probability of that loss aligns with this understanding. Recognizing this distinction is crucial in risk assessment and in formulating insurance policies that effectively mitigate potential losses.