PSI Ohio Insurance Practice Exam 2025 – All-in-One Guide to Exam Success

A moral hazard refers to a situation where one party engages in risky behavior or unethical practices because they do not have to bear the full consequences of that behavior, often due to the protection provided by insurance. Filing a false insurance claim exemplifies moral hazard, as the individual is attempting to take advantage of the insurance system without facing the financial loss that would otherwise discourage such dishonest behavior. This action demonstrates a shift in an individual's behavior due to the feeling that they are insulated from the repercussions of their actions, primarily because they believe their loss will be covered by insurance.

The other scenarios, such as neglecting home maintenance, not securing property properly, or choosing higher deductibles, may represent risky behavior or sound financial decisions, but they do not illustrate moral hazard in the same way. Neglecting maintenance and not securing property may result from carelessness rather than an intent to exploit insurance. Choosing higher deductibles is a legitimate financial strategy to lower premium costs and does not involve a deceptive or opportunistic motivation regarding insurance payouts.