Which term describes the principle that the insured must be honest about the risk with the insurer?

The term that describes the principle that the insured must be honest about the risk with the insurer is "Utmost Good Faith." This principle is foundational in insurance contracts, emphasizing the necessity for both parties—insurers and insureds—to act honestly and transparently. When an insured applies for a policy, they are obligated to disclose all relevant information regarding the risk they are presenting. If the insured fails to provide complete and truthful information, it can result in the insurance company being misled about the risk, potentially affecting coverage or leading to claim denial.

The concept of utmost good faith ensures that both parties to the contract understand their obligations and fosters a relationship based on trust. It is important in preventing moral hazard and ensuring that both the insurer's and insured's interests are protected throughout the insurance transaction.