State RegulationsCA specific✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Under California Insurance Code Section 22, insurance is defined as a contract whereby one party agrees to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Section 22 defines insurance as a contract in which one party (the insurer) agrees to indemnify another (the insured) against loss, damage, or liability arising from a contingent or unknown event. The key word is indemnify — restore financially — not eliminate risk or guarantee profit. The insured still faces the risk; the contract simply spreads the financial consequences.
Why the other options are wrong
- B) Insurance is not an investment vehicle; it does not guarantee a return on premiums — that is the role of savings or investment products.
- C) No contract can eliminate risk itself; insurance transfers the financial burden of loss, it does not make the loss impossible.
- D) The insurer never takes ownership of the insured property; insurance indemnifies against loss while the insured retains ownership.
Memory hook
Insurance spreads the pain of a loss, it does not delete the loss. Indemnify = make whole financially, nothing more.