Under California Insurance Code Section 22, a policy that pays a death benefit is valid insurance even though death is a certainty for everyone. Which statement explains why?
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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 to indemnify against loss, damage, or liability arising from a contingent or unknown event. The phrase 'contingent or unknown' is disjunctive: an event qualifies if its happening is uncertain OR if the time of its happening is unknown. Death is certain in happening, but its timing is unknown, so the loss it causes arises from an unknown event. This is why life insurance, disability insurance, and other time-uncertain coverages are true insurance under California law rather than savings or guarantee arrangements.
Why the other options are wrong
- B) Section 22 draws no exemption for life and health policies; they must satisfy the same definition, and they do so through the 'or unknown' timing language.
- C) Death is a pure risk offering only the chance of loss, not a speculative risk, and insurance never requires a chance of gain.
- D) Payment of premium is the consideration, but the statutory definition still requires a loss arising from a contingent or unknown event.
Memory hook
Everyone's clock stops; only the alarm time is a mystery. Section 22 accepts the 'when' being unknown.