State RegulationsCA specific✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A company offers customers a contract promising to pay for appliance repairs if the appliances break during the next five years, in exchange for an upfront fee. Under California Insurance Code Section 22, this arrangement would most likely be classified as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under Section 22, insurance is a contract whereby one party undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. A repair plan promises to pay repair costs if a breakdown occurs - a contingent event - in exchange for an upfront fee, so it has all three features of insurance: an indemnity promise, a contingency, and an exchange of value. Labels such as 'warranty' do not by themselves remove an arrangement from the scope of Section 22.
Why the other options are wrong
- B) A warranty label does not automatically remove the arrangement from Section 22; what matters is whether it indemnifies against a contingent event for a fee.
- C) The fee is not held as the customer's own repair fund; it is pooled to pay claims, which is the insurance mechanism.
- D) A fee is paid and a promise is made, so there is an exchange of value, not a gift.
Memory hook
Pay for a maybe-loss in exchange for money = insurance under §22, whatever it is called.