General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A warehouse has exposed electrical wiring and an accumulation of oily rags near a furnace. For purposes of risk classification, these conditions are best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A physical hazard is a tangible, physical condition that increases the chance of loss — faulty wiring, oily rags, a woodstove near a wall. The conditions described are real-world objects and defects, so they are physical hazards. Physical hazards are objective and can often be corrected or priced into the premium.
Why the other options are wrong
- B) A moral hazard is dishonesty — the owner deliberately sets a fire or stages a theft; no dishonesty is involved here.
- C) A morale hazard is carelessness that develops because insurance exists, such as failing to lock doors after buying theft coverage.
- D) A peril is the actual cause of loss — fire, theft, wind — not a condition that makes a loss more likely.
Memory hook
Physical = a thing you can touch that makes loss likely. Moral = a schemer. Morale = a slacker. Peril = the event itself.