Insurance Broker Certification Practice Exam

A tornado that destroys property is classified as what in terms of insurance?

1. A liability

2. A peril

3. A claim

4. A loss

The correct answer is: A peril

In the context of insurance, a tornado that destroys property is classified as a peril. A peril refers to a specific risk or cause of potential loss that can be covered under an insurance policy. Natural disasters like tornadoes, floods, and earthquakes are common examples of perils, as they create the circumstances that lead to damage or property loss. Insurers develop policies that specify which perils are covered. For example, a homeowners insurance policy may cover damage due to tornadoes, meaning that if a tornado strikes and damages the home, the resulting financial implications fall under the category of losses incurred due to that specific peril. Understanding this classification is crucial for insurance brokers when advising clients on policy coverage and ensuring their clients are adequately protected against various risks. This category helps differentiate between the types of insurance concepts and is fundamental to grasping how claims and coverage work in practice.