USAA Licensing Practice Exam

Morale hazard refers to situations where the potential for loss is affected by the insured's conscious or intentional disregard for risk, often due to their sense of security from having insurance. This type of hazard arises from an individual's attitude or behavior that can increase the likelihood or severity of a loss. For instance, a person who has comprehensive auto insurance might be less careful with their vehicle, thinking that the insurance will cover any damages or theft.

In the context of intentional acts, morale hazards involve scenarios where individuals might take undue risks or even engage in fraudulent activities, knowing that they are covered by insurance. This creates a moral dilemma because it's the insured’s recklessness or intent that can lead to the loss, rather than mere chance or external factors.

The other options represent different types of hazards that do not directly involve intentional acts leading to loss. Physical hazards relate to tangible conditions that increase risk, legal hazards concern the potential for loss stemming from litigation or regulatory issues, and market hazards refer to fluctuations in market conditions that can affect the value of investments, none of which directly involve the intentional conduct of individuals.