California Life, Accident & Health Agent Practice
Exam
Questions | 150+ Items | Based on CDI Official
Objectives 2026| 2027
1. Under California Insurance Code Section 22, insurance is best defined as:
A) A wager on future events
B) A device for transferring pure risk from an individual to an insurer in exchange for premium
C) A guaranteed investment with fixed returns
D) A method to eliminate all financial uncertainty
✅ Answer: B
📚 Rationale: Cal. Ins. Code §22 defines insurance as a contract whereby one undertakes to indemnify
another against loss from specified contingencies. Insurance transfers pure risk (only loss or no loss) not
speculative risk. Option A describes gambling (prohibited), C misrepresents insurance as an investment,
and D is impossible—insurance manages, not eliminates, risk.
2. Which of the following represents a "pure risk" rather than a speculative risk?
A) Investing in cryptocurrency
B) Starting a new business venture
,C) The possibility of a house fire
D) Betting on a sports event
✅ Answer: C
📚 Rationale: Pure risk involves only the possibility of loss or no loss (no gain opportunity). Fire, death,
or disability are pure risks insurable because they're fortuitous and measurable. Speculative risks (A, B,
D) involve potential gain and are not insurable under standard policies.
3. A "moral hazard" in insurance underwriting refers to:
A) Physical conditions increasing loss likelihood (e.g., faulty wiring)
B) Attitudinal conditions like carelessness or indifference to loss
C) Dishonest character traits that increase the chance of intentional loss
D) Geographic location prone to natural disasters
✅ Answer: C
📚 Rationale: Moral hazard relates to the insured's character/integrity—e.g., someone who might
deliberately cause a loss. Morale hazard (B) is carelessness; physical hazard (A) is tangible risk factors.
Underwriters assess all three to price risk appropriately.
4. The "law of large numbers" is fundamental to insurance because it:
A) Guarantees every policyholder will receive a claim payment
B) Allows insurers to predict loss experience more accurately as the pool of similar risks grows
C) Requires insurers to accept all applicants regardless of risk
D) Mandates that premiums decrease as more people buy insurance
✅ Answer: B
📚 Rationale: This statistical principle states that as the number of similar exposure units increases,
, actual loss experience will more closely match expected loss. This predictability enables insurers to set
adequate, equitable premiums. It does not guarantee individual outcomes (A) or force acceptance of all
risks (C).
5. For a risk to be ideally insurable, it generally must be:
A) Certain to occur and catastrophic in nature
B) Fortuitous, definite, measurable, and not catastrophic to the insurer
C) Speculative and controllable by the insured
D) Required by law for all citizens
✅ Answer: B
📚 Rationale: Ideal insurable risks are: (1) fortuitous (accidental), (2) definite in time/place/amount, (3)
measurable, (4) not catastrophic to the insurer (diversifiable), (5) have a large homogeneous exposure
pool, and (6) economically feasible to insure. Certainty (A) violates the fortuity principle.
Contract Law Fundamentals
6. Which element is NOT required for a valid insurance contract under California law?
A) Offer and acceptance
B) Consideration (premium and promise to pay claims)
C) Notarization of the application
D) Competent parties with legal purpose
✅ Answer: C
📚 Rationale: The four essential contract elements are: (1) agreement (offer/acceptance), (2) competent
Exam
Questions | 150+ Items | Based on CDI Official
Objectives 2026| 2027
1. Under California Insurance Code Section 22, insurance is best defined as:
A) A wager on future events
B) A device for transferring pure risk from an individual to an insurer in exchange for premium
C) A guaranteed investment with fixed returns
D) A method to eliminate all financial uncertainty
✅ Answer: B
📚 Rationale: Cal. Ins. Code §22 defines insurance as a contract whereby one undertakes to indemnify
another against loss from specified contingencies. Insurance transfers pure risk (only loss or no loss) not
speculative risk. Option A describes gambling (prohibited), C misrepresents insurance as an investment,
and D is impossible—insurance manages, not eliminates, risk.
2. Which of the following represents a "pure risk" rather than a speculative risk?
A) Investing in cryptocurrency
B) Starting a new business venture
,C) The possibility of a house fire
D) Betting on a sports event
✅ Answer: C
📚 Rationale: Pure risk involves only the possibility of loss or no loss (no gain opportunity). Fire, death,
or disability are pure risks insurable because they're fortuitous and measurable. Speculative risks (A, B,
D) involve potential gain and are not insurable under standard policies.
3. A "moral hazard" in insurance underwriting refers to:
A) Physical conditions increasing loss likelihood (e.g., faulty wiring)
B) Attitudinal conditions like carelessness or indifference to loss
C) Dishonest character traits that increase the chance of intentional loss
D) Geographic location prone to natural disasters
✅ Answer: C
📚 Rationale: Moral hazard relates to the insured's character/integrity—e.g., someone who might
deliberately cause a loss. Morale hazard (B) is carelessness; physical hazard (A) is tangible risk factors.
Underwriters assess all three to price risk appropriately.
4. The "law of large numbers" is fundamental to insurance because it:
A) Guarantees every policyholder will receive a claim payment
B) Allows insurers to predict loss experience more accurately as the pool of similar risks grows
C) Requires insurers to accept all applicants regardless of risk
D) Mandates that premiums decrease as more people buy insurance
✅ Answer: B
📚 Rationale: This statistical principle states that as the number of similar exposure units increases,
, actual loss experience will more closely match expected loss. This predictability enables insurers to set
adequate, equitable premiums. It does not guarantee individual outcomes (A) or force acceptance of all
risks (C).
5. For a risk to be ideally insurable, it generally must be:
A) Certain to occur and catastrophic in nature
B) Fortuitous, definite, measurable, and not catastrophic to the insurer
C) Speculative and controllable by the insured
D) Required by law for all citizens
✅ Answer: B
📚 Rationale: Ideal insurable risks are: (1) fortuitous (accidental), (2) definite in time/place/amount, (3)
measurable, (4) not catastrophic to the insurer (diversifiable), (5) have a large homogeneous exposure
pool, and (6) economically feasible to insure. Certainty (A) violates the fortuity principle.
Contract Law Fundamentals
6. Which element is NOT required for a valid insurance contract under California law?
A) Offer and acceptance
B) Consideration (premium and promise to pay claims)
C) Notarization of the application
D) Competent parties with legal purpose
✅ Answer: C
📚 Rationale: The four essential contract elements are: (1) agreement (offer/acceptance), (2) competent
