The same issue arises for insurance policies that cover losses from theft. For example, with insurance in effect, the property owner may have less incentive to install alarm systems, to pay for private patrol service, and so on. Also, the smaller the deductible in such policies, the less incentive the property owner has to prevent losses from theft. Of course, the more claims made on such insurance policies, the higher the average insurance rate per dollar amount insured. Thus, those individuals who are careless about protecting their own property impose costs on all individuals who buy property insurance.
Moral hazard exists with medical insurance as well.
The smaller the deductible, the greater the incentive for the individual to neglect the practice of preventive medicine. It is argued that in the United States, too many resources are devoted to the care of those who are already sick and too few resources to preventive medicine. Issues of fairness often arise when insurance companies attempt to avoid payment on policies. Recall that policies for life or health insurance commonly include, by statutory requirement, incontestability clauses. An incontestability clause provides that after the policy has been in force for a specified length of time usually two years the insurer cannot contest statements made in the application.