Illinois Casualty Insurance State Practice Exam

What is defined as an event that causes damage and results in financial loss?

1. Hazard

2. Risk

3. Peril

4. Indemnity

The correct answer is: Peril

The concept of peril refers specifically to an event that causes damage and results in financial loss. In the context of insurance, peril is the direct cause of a loss, such as fire, theft, or natural disasters. Understanding peril is fundamental for determining what is covered under an insurance policy, as it outlines the specific events that can trigger a claim. The other terms have distinct meanings that clarify their roles within insurance. A hazard refers to a condition or situation that increases the likelihood or severity of an insured event occurring, while risk is the chance that a loss may occur. Indemnity is the principle that refers to compensating for a loss, restoring an insured party to the financial position they were in before the loss occurred. Thus, while hazards, risks, and indemnities are related to the broader concept of insurance, they do not specifically define the event that leads to damage and financial loss, which is why peril is the correct choice.