Moral Hazard

byPaytm Editorial TeamLast Updated: November 14, 2025

Definition

Moral Hazard happens when an insured person takes higher risks because they know they are protected by insurance. For example, a car owner may drive carelessly after getting motor insurance, believing the insurer will cover any damage.

Insurance companies reduce moral hazard by applying deductibles, co-payments, and claim checks.

Example

If someone claims false damage to get insurance money, it is also a moral hazard.

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