Final answer:
The increase in the probability of a loss due to an insured's dishonest tendencies is called moral hazard.The correct answer is option A.
Step-by-step explanation:
The correct answer is A) Moral hazard.Moral hazard refers to the case when people engage in riskier behavior with insurance than they would if they did not have insurance.
An insured's dishonest tendencies can increase the probability of a loss because they may be more inclined to engage in fraudulent activities knowing that they are covered by insurance.
For example, if someone has insurance coverage for their belongings, they may be more likely to intentionally damage or steal their own items to receive an insurance payout.
This is a form of moral hazard where the insured's dishonest tendencies lead to an increased probability of loss.
In contrast, physical hazard refers to the existence of external conditions or factors that increase the likelihood of a loss, such as fire hazards or slippery floors.
Morale hazard refers to a decreased level of care or concern due to being protected by insurance, and legal hazard refers to risks associated with lawsuits or legal issues.The correct answer is option A.