Massachusetts Health & Accident Insurance Practice Exam

Which of the following premiums is considered a moral hazard?

1. Disability due to age

2. Smoker's insurance rates

3. Work-related injuries

4. Claims from a car accident

The correct answer is: Smoker's insurance rates

In the context of insurance, a moral hazard refers to the increased likelihood of loss due to the behavior of the insured party. This typically occurs when individuals engage in riskier behaviors because they know they are covered by insurance. When it comes to smoker's insurance rates, smokers often face higher premiums because their behavior poses a higher risk to the insurer. This is a classic illustration of moral hazard, as the knowledge that they have insurance may lead individuals to maintain or even heighten risky behaviors (smoking, in this case) because they believe they are protected against the financial consequences of those behaviors. This contrasts with the other options: disability due to age, work-related injuries, and claims from car accidents do not inherently involve a change in behavior that increases risk because those situations arise from either age-related factors or unavoidable circumstances rather than individual choices that could be controlled or altered.