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Which type of hazard arises from a state of mind that can lead to carelessness regarding loss?

Moral hazard

Morale hazard

Morale hazard refers to a condition where an individual's state of mind or attitude leads to carelessness concerning the risk of loss. This can occur, for instance, when a person becomes indifferent about taking care of their property, believing that insurance will cover any potential losses. This mentality might result in behavior that increases the probability of a loss occurring, such as neglecting to take basic precautions because the individual feels secure in the knowledge that they have insurance coverage.

Moral hazard, while related, typically involves a situation where one party takes on risks because they do not bear the full consequences of their actions, often because someone else will cover the cost of loss. Understanding these distinctions is crucial, as morale hazards directly relate to the attitude and behavior of the policyholder, which then influences the likelihood of losses occurring.

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Property insurance

Casualty insurance

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