Final answer:
A statement of indemnity in an insurance contract guarantees compensation for covered losses, and if incorrect, can breach the contract. This reinforces the concept of shared risk and the regular payment of premiums by policy holders. Moral hazard arises as insured individuals may take fewer precautions against risks covered by insurance.
Step-by-step explanation:
The statement that is guaranteed to be true in an insurance contract, and if found to be untrue, can breach the contract, is known as a statement of indemnity. Indemnity is a foundational concept in insurance where the insurer agrees to compensate the insured for any covered losses, essentially returning them to their financial position prior to the loss. This aspect of insurance contracts underscores the notion of risk sharing among policy holders, who regularly pay premiums into the insurance pool. The monies gathered are then allocated to members who encounter the insured event, helping to mitigate their financial damage.
Moral hazard is a related concern, as those insured may be less motivated to prevent the risks they are insured against, knowing they have a financial safety net. In the context of insurance, a breach may occur if either party, the insurer or the insured, fails to comply with the terms set forth in the insurance agreement, such as misrepresenting the likelihood of a risk occurring or failing to fulfill compensation promises.