06/07/2012 03:40 pm ET Updated Aug 07, 2012

Insurance Quiz: Is It a Peril or Hazard?

For Women & Co. by Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management

If you want to save money on insurance, give some thought to the difference between a peril and a hazard. To companies that sell homeowner's insurance, a peril is something that causes a loss, such as a fire, flood, windstorm, tornado or hurricane. To health insurance companies, broken bones and diabetes may be considered perils. For car insurers, auto accidents are an obvious peril. Some of these perils can't be avoided. But other perils, or at least their effects, can be eliminated or minimized.

That's where hazard -- a circumstance that might result in a loss or increase its severity -- comes in. Take your home. Flammable liquids or materials in an unsafe location, no smoke alarms and even a slippery floor or front walk may be hazards that can contribute to a loss and possibly also a liability claim. Indeed, if your home is poorly maintained, it may violate the terms of your homeowner's insurance, which could mean your policy might not be renewed and could even be cancelled.

Similarly, you'll pay more for auto insurance if you have a poor driving record or own a "high performance" sports car. On the health front, if you smoke, are overweight or don't exercise, you'll probably pay more for health and life insurance.

The bottom line: Anything you can do to minimize hazards -- maintain your home, don't smoke, watch your weight, exercise regularly and drive safely -- could help reduce your premiums for home, health, car and life insurance.

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