PSI Ohio Insurance Practice Exam

Which term is defined as the cause of loss in insurance?

1. Risk

2. Peril

3. Hazard

4. Loss

The correct answer is: Peril

In the context of insurance, the term that is defined as the cause of loss is "peril." This refers to specific events or situations that can lead to damages or losses, such as fire, theft, flood, or accidents. Each of these events can trigger a claim under an insurance policy because they are the direct causes of the loss that the policy is designed to cover. Understanding that peril identifies the specific instance of loss is critical in the application of insurance coverage and policy terms. This distinction helps insurance professionals assess risks and determine the appropriateness and limitations of coverage provided by different policies. It’s also important to differentiate "peril" from similar terms. Risk relates to the chance of a loss occurring, while hazard refers to a condition that increases the likelihood of a peril occurring, such as poor maintenance of a property that could lead to a fire. Loss refers to the actual financial impact or damage resulting from a peril. Hence, peril specifically pinpoints the cause of loss, making it the correct answer in this context.