How do the terms "peril" and "hazard" differ in insurance terminology?

The distinction between "peril" and "hazard" is fundamental in insurance terminology. A peril is specifically an event or occurrence that causes loss or damage; it is essentially the event that directly results in a claim being made, such as fire, flood, or theft. On the other hand, a hazard refers to conditions that increase the likelihood of a peril occurring or that exacerbate the severity of the loss if a peril occurs. Hazards don’t cause loss directly but rather contribute to the risk associated with a peril.

This understanding makes the first choice notably accurate. It clearly defines peril as associated with potential loss while hazard pertains to risk conditions that might lead to that loss. The other options misinterpret these terms, failing to distinguish between direct events that lead to loss and the conditions that might increase that risk. Recognizing these differences is crucial for risk assessment and management in insurance.