California Life & Health: Life Insurance Basics & Risk Concepts

Correct

The answer is A: Foreign insurer

In California, a foreign insurer is one not organized under California law, whether or not it is admitted (Ins. Code §27), so a New York company authorized to do business here is an admitted foreign insurer. A domestic insurer is organized under California law (§26). An alien insurer is a foreign insurer organized outside the United States (§1580), which a New York company is not. A non-admitted insurer is one not authorized to do business in the state, and this insurer is authorized.

Reviewed in our October 2026 California fact-check.

Correct

The answer is C: The financial rating of the insurer.

The California Insurance Code specifies six required specifications for an insurance policy: the parties, the life or property insured, the interest of the insured, the risks insured against, the period, and the premium (or basis for the final premium). The financial rating of the insurer is NOT one of these required specifications. While important, it's not a contractual element that must be printed on the policy itself.

Reviewed in our October 2026 California fact-check.

Correct

The answer is B: ABC: Mutual insurer; XYZ: Stock insurer

Mutual insurers are owned by their policyholders, and any 'dividends' paid to policyholders are considered a return of unneeded premium, not taxable profits. Stock insurers are owned by stockholders, and their dividends are paid to these shareholders from company profits and are taxable. Fraternal and Reciprocal insurers are other types of insurers with different ownership and operational structures.

Reviewed in our October 2026 California fact-check.

Correct

The answer is A: A history of filing false insurance claims.

Moral hazard refers to a flaw in a person's character, such as dishonesty, that increases the chance of loss; a history of filing false claims is a classic example. (A careless or indifferent attitude because one is insured is a morale hazard.) Extreme sports are physical hazards, family history is a medical risk factor, and neighborhood location is a physical or environmental factor.

Reviewed in our October 2026 California fact-check.

Correct

The answer is C: To let an insurer predict losses for a large group of insureds accurately.

The Law of Large Numbers states that as the number of exposure units increases, the actual results will more closely approach the expected results, allowing for accurate premium calculation.

Reviewed in our October 2026 California fact-check.