Milton can sell his house for $175,000,but he has an outstanding mortgage of $195,000.Rather than selling the house,he is thinking about "helping" it burn to the ground so he could collect the $190,000 for which the house is insured.This would be an example of a ____ hazard.

Question

Quizplus · Accepted Answer

Milton's actions would be an example of a moral hazard, where the availability of insurance causes a person to act in a riskier way than they would otherwise. The fact that he is willing to let his house burn down to collect insurance money shows that he is motivated by the potential financial gain, rather than the desire to protect his property.

Milton Can Sell His House for $175,000,but He Has an Outstanding