What might lead to a "moral hazard" situation?

A moral hazard occurs when a person adjusts their behavior because they are insured, leading to an increase in risk. In this case, the correct choice illustrates the tendency of an insured individual to take fewer precautions after obtaining coverage. The rationale behind this is that the individual may feel secure in the knowledge that their insurance will cover any potential losses or damages. As a result, they might engage in riskier behaviors that they would have otherwise avoided if they were not insured.

For instance, a homeowner may neglect routine maintenance or security measures, believing that their insurance will compensate them in the event of theft or damage. This change in behavior can lead to an increased likelihood of loss or damage, which is the essence of moral hazard.

Conversely, options that include regular maintenance, increase in liabilities without coverage, or maintaining financial planning represent proactive or responsible behaviors that typically reduce risk rather than safeguard a moral hazard situation.