South Carolina Personal Lines Practice Exam

What does the term 'peril' refer to in insurance?

1. Measure of risk

2. Cause of loss

3. Amount of coverage

4. Type of hazard

The correct answer is: Cause of loss

In the context of insurance, 'peril' specifically refers to the cause of loss or damage that a policy covers. This could include various events such as fire, theft, or natural disasters like hurricanes or floods. Insurance policies typically list specific perils that are covered, and understanding these perils is crucial for policyholders as it defines the scope of their coverage. The concept of peril is fundamental in insurance as it directly relates to what events trigger a claim. When a peril occurs and results in loss or damage, the insurance policy responds based on the terms laid out regarding that particular peril. This understanding helps consumers know what risks are mitigated by their insurance and what they might need additional coverage for. While other terms like measure of risk, amount of coverage, and type of hazard are relevant in the context of insurance, they describe different aspects of the insurance landscape. The measure of risk relates to how likely it is for a peril to occur, the amount of coverage pertains to the financial limits of what an insurance policy will pay out, and type of hazard refers to the conditions that can increase the danger associated with a peril, but none of these accurately capture the definition of 'peril' itself.