Glossary

Moral hazard

The risk that holding insurance leads someone to cause or inflate a loss, or to take less care, because the insurer rather than the owner bears the cost.

Also called: morale hazard, hazard of dishonesty

Moral hazard is an underwriter's term for the chance that insurance itself will change how a person behaves. Strictly, moral hazard is dishonesty: burning a house that is worth more insured than sold, staging a burglary, or inflating a legitimate claim. The related term morale hazard describes carelessness, such as ignoring a slow leak or leaving a home empty because "insurance will cover it." People often use moral hazard for both.

Insurers manage it with several tools. The deductible keeps the owner paying part of every loss. Exclusions for intentional loss and neglect remove coverage for deliberate or avoidable damage. Limits based on rebuilding cost, plus the requirement of insurable interest, keep people from over-insuring a house or insuring someone else's. A concealment or fraud condition lets the insurer void coverage if a material fact was misrepresented, and special investigators or an examination under oath can follow suspicious claims.

Underwriters watch for signs: sudden financial stress, an unexplained jump in coverage, a pattern of claims, a neglected or vacant property. The practical lesson for a homeowner is simple. Report losses accurately, keep up maintenance, and do not pad even a small claim; a false statement can cost you the entire claim and lead to criminal charges. See the guide to homeowners insurance fraud.

Last reviewed October 10, 2026

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Related terms

Insurable interest The financial stake in a property that you must hold, so that its damage or loss would cost you money, before an insurer can cover it or pay you for a claim. Intentional loss An exclusion for damage arising from an act that an insured commits or conspires to commit with the intent to cause a loss, such as arson of one's own home. Neglect Failure to use all reasonable means to save and protect property at and after the time of a loss, which the policy excludes to the extent the damage grows. Deductible The amount of a covered property loss you pay yourself before the insurer pays the rest, shown on your declarations page as a dollar figure or a percentage. Underwriting How an insurer evaluates a home and its owner, decides whether to offer coverage and on what terms, and sets the price. Insurance to value The ratio of the coverage on a home to what it would cost to rebuild it today; 100% means the limit matches the rebuild cost.

Related guides

Arson, staged losses and fraud investigations How insurers and fire investigators test a suspicious fire or theft, what the intentional loss exclusion does, and what to do if your claim is investigated. Homeowners insurance fraud: what it is and how it's caught What counts as homeowners insurance fraud, hard versus soft fraud, how insurers investigate suspicious claims, and what an accusation means for you.