California Life and Health Insurance Practice Exam

Which of the following is a contract that involves one party indemnifying another when a loss arises from an unknown event?

1. Surety bond

2. Insurance policy

3. Lease agreement

4. Guarantees

The correct answer is: Insurance policy

The correct answer is an insurance policy, which is designed specifically to provide indemnification to a party in case of a loss resulting from an uncertain or unknown event. In an insurance contract, the insurer agrees to compensate the insured for specific losses or damages, thereby transferring the risk of loss. This function of risk transfer is foundational to the concept of insurance and underscores the unpredictability of the events covered. While surety bonds and guarantees also involve risk management and protection against losses, they primarily serve different purposes—ensuring the performance of a contract or obligation rather than indemnifying for losses from unknown events. A lease agreement creates a legal relationship regarding property usage, but it does not involve indemnification related to uncertainties that could lead to loss. Therefore, an insurance policy is uniquely tailored to the need for covering unforeseen losses, making it the correct answer to this question.