Which of the following is an example of moral hazard?
A)After Karabo buys fire insurance, he begins to smoke cigarettes in bed.
B)None of these answers demonstrate moral hazard.
C)Martin has been feeling poorly lately so he seeks health insurance.
D)Both of Susan's parents lost their teeth due to gum disease, so Susan buys dental insurance.
E)All of these answers demonstrate moral hazard.

Question

Quizplus · Accepted Answer

Moral hazard occurs when an individual changes their behavior based on the protection provided by insurance. In this case, Karabo's actions of smoking in bed after buying fire insurance demonstrate moral hazard as he is taking on riskier behavior knowing that he will be protected by insurance. The other answer choices do not demonstrate moral hazard as there is no change in behavior based on the protection provided by insurance.

Which of the Following Is an Example of Moral Hazard