Key Difference – Peril vs Hazard
Peril and hazard both refer to a risk, and these words can be used interchangeably in everyday language. However, peril and hazard have specific meanings in the field of finance and insurance. In insurance, peril is something that causes a financial loss whereas a hazard is a condition or circumstance that increases the probability of peril. This is the key difference between peril and hazard.
What is a Peril?
A peril is something that can cause a financial loss. In insurance, it is the probable cause that exposes a person or property to the risk of injury, damage or loss, and against which an insurance policy is purchased. Some examples of perils include car crash, theft, disability, illness, fire, flood, earthquake, etc. The term peril can be also used to describe the type of insurance policy you have. Insured perils or named perils will be always listed in an insurance policy, with the exception of an all-risk policy that covers all risks except those that are specifically excluded.
What is a Hazard?
A hazard is a condition or circumstance that increases the probability that a peril will occur. In other words, a hazard makes the occurrence of a peril more likely. For example, factors like slippery roads, and driving under the influence of alcohol can increase the probability of an accident. Here, the accident is a peril whereas slippery roads or driving under the influence of alcohol are hazards.
Hazards are categorized into three types known as physical hazards, moral hazards and morale hazards.
Physical hazard: actions, behaviors or physical conditions that increase the possibility of a peril. For example, smoking is considered to be a physical hazard that increases the likelihood of a fire or illness.
Moral hazard: hazards that occur due to immoral behavior such as dishonesty and fraud. For example, a business owner may burn down his warehouse to collect the insurance money or an accident victim may exaggerate his injuries.
Morale Hazard: hazards that result from circumstances that make people or institutions adopt a careless or reckless attitude, which increases the possibility an injury or loss. For example, having insurance can make a person less careful about avoiding an injury or loss.
What is the difference between Peril and Hazard?
Peril: A peril is something that can cause a loss.
Hazard: A hazard is something that increases the probability of a peril.
Peril: Theft, disease, fire, flood, car crash, earthquake, lightning, etc. are some examples of perils.
Hazard: smoking, slippery road, leaving your doors unlocked, drinking and driving, etc. are some examples of hazard.Image Courtesy: “Smoking in black and white” By Sophie Riches – Own work (CC BY-SA 3.0) via Commons Wikimedia “Shadow Ridge Road Fire” By LukeBam06 – Own work (CC BY-SA 3.0) via Commons Wikimedia