Insurance Broker Certification Practice Exam

Which term describes the reduction, decrease, or disappearance of value of insured property due to a specified cause?

1. Peril

2. Loss

3. Hazard

4. Claim

The correct answer is: Loss

The term that describes the reduction, decrease, or disappearance of value of insured property due to a specified cause is loss. In the context of insurance, a loss occurs when there is a negative impact on the value of an asset as a result of an event that is covered by an insurance policy. This could involve damage from events like fire, theft, or natural disasters, leading to a financial claim against the insurance policy. Peril refers to the actual risk or cause of the loss, such as a flood or fire, but does not describe the impact itself. Hazard signifies a condition or situation that increases the likelihood of a peril occurring, rather than indicating the resulting loss of value. A claim is the formal request made by the insured to the insurance company for compensation for a loss incurred, following an event that leads to a decrease in value. Thus, among the options presented, "loss" is the most accurate term to describe the reduction in value of the insured property.