Moral Hazard
Plain English Definition: Moral hazard refers to the increased risk of reckless behavior when someone is protected by insurance.
What Moral Hazard really means for someone with an insurance policy
When insured, people might take greater risks because they know the insurance will cover potential losses.
Moral Hazard Real World Examples
- Driving carelessly because auto insurance will cover damages.
- Neglecting home maintenance, assuming homeowners insurance will pay for repairs.
- Submitting exaggerated claims after an insured loss.