California Adjuster License (PSI) Exam Prep 2025 – Full
Study Guide
Category 1: Insurance Regulations and Concepts (1-20)
1. What is the primary purpose of insurance?
A) To generate profit for shareholders
B) To restore the insured to their pre-loss financial condition ✓
C) To guarantee that no losses will occur
D) To provide a tool for investment
2. Which of the following best defines "Indemnity"?
A) The principle that the insured should profit from a loss
B) The principle of restoring the insured to the same financial position as before the loss ✓
C) The principle of paying the face value of the policy regardless of the loss
D) The principle of sharing losses among a group of policyholders
3. An insurance policy is considered a contract of:
A) Adhesion ✓
B) Consideration
C) Utmost good faith
D) Aleatory
4. The principle of "Utmost Good Faith" requires:
A) Only the insurer to act honestly
B) Only the insured to act honestly
C) Both the insurer and the insured to deal fairly and honestly with each other ✓
D) The adjuster to always side with the insured
5. What is "Subrogation"?
A) The process of determining the premium for a policy
B) The insurer's right to recover a loss payment from a negligent third party ✓
C) The act of an insured abandoning damaged property to the insurer
D) The process of adding an additional insured to a policy
6. A "Waiver" is defined as:
A) The voluntary relinquishment of a known right. ✓
B) A formal complaint against an adjuster.
C) An increase in the policy deductible.
D) A mandatory coverage in all property policies.
,7. "Estoppel" prevents an insurer from:
A) Denying a claim that is clearly covered.
B) Asserting a right after having previously waived that right. ✓
C) Subrogating against a government entity.
D) Canceling a policy for non-payment of premium.
8. An agent who acts on behalf of the insurer is known as a:
A) Broker-agent
B) Independent agent
C) Agent of the insurer ✓
D) Agent of the insured
9. The document that certifies a policy exists and states the key coverages and terms is the:
A) Declaration Page ✓
B) Insuring Agreement
C) Conditions Clause
D) Endorsement Form
10. A policy provision that adds, deletes, or modifies the original policy is called a(n):
A) Warranty
B) Endorsement ✓
C) Rider (same as Endorsement)
D) Binder
11. A "Binder" is a:
A) Permanent insurance policy.
B) Temporary evidence of insurance until the policy is issued. ✓
C) Document that denies a claim.
D) Long-term coverage agreement.
12. The part of the policy that outlines the promises of the insurance company is the:
A) Conditions
B) Exclusions
C) Declarations
D) Insuring Agreement ✓
13. What does the "Legal Purpose" element of an insurance contract mean?
A) The contract must be for a legal purpose and not against public policy. ✓
B) The contract must be filed with the state department of insurance.
, C) The contract must be written in legal language.
D) The contract must be for a commercial entity.
14. A representation on an application that is untrue and material to the risk can lead to:
A) Automatic policy renewal
B) A premium discount
C) Rescission of the policy by the insurer ✓
D) A mandatory endorsement
15. The consideration from the insurer in an insurance contract is the:
A) Policy application
B) Promise to pay for covered losses ✓
C) Payment of premium
D) Statement of values
16. The consideration from the insured in an insurance contract is the:
A) Payment of premium and statements in the application ✓
B) Submission of a claim
C) Agreement to use approved contractors
D) Promise to avoid all risk
17. An insurer's act of rejecting an application for insurance is known as:
A) Rescission
B) Underwriting
C) Declination ✓
D) Termination
18. The process of selecting and classifying risks is called:
A) Rating
B) Underwriting ✓
C) Adjusting
D) Marketing
19. A person who receives the benefits of a life insurance policy after the insured's death is
the:
A) Assignee
B) Beneficiary ✓
C) Third-party claimant
D) Loss payee
Study Guide
Category 1: Insurance Regulations and Concepts (1-20)
1. What is the primary purpose of insurance?
A) To generate profit for shareholders
B) To restore the insured to their pre-loss financial condition ✓
C) To guarantee that no losses will occur
D) To provide a tool for investment
2. Which of the following best defines "Indemnity"?
A) The principle that the insured should profit from a loss
B) The principle of restoring the insured to the same financial position as before the loss ✓
C) The principle of paying the face value of the policy regardless of the loss
D) The principle of sharing losses among a group of policyholders
3. An insurance policy is considered a contract of:
A) Adhesion ✓
B) Consideration
C) Utmost good faith
D) Aleatory
4. The principle of "Utmost Good Faith" requires:
A) Only the insurer to act honestly
B) Only the insured to act honestly
C) Both the insurer and the insured to deal fairly and honestly with each other ✓
D) The adjuster to always side with the insured
5. What is "Subrogation"?
A) The process of determining the premium for a policy
B) The insurer's right to recover a loss payment from a negligent third party ✓
C) The act of an insured abandoning damaged property to the insurer
D) The process of adding an additional insured to a policy
6. A "Waiver" is defined as:
A) The voluntary relinquishment of a known right. ✓
B) A formal complaint against an adjuster.
C) An increase in the policy deductible.
D) A mandatory coverage in all property policies.
,7. "Estoppel" prevents an insurer from:
A) Denying a claim that is clearly covered.
B) Asserting a right after having previously waived that right. ✓
C) Subrogating against a government entity.
D) Canceling a policy for non-payment of premium.
8. An agent who acts on behalf of the insurer is known as a:
A) Broker-agent
B) Independent agent
C) Agent of the insurer ✓
D) Agent of the insured
9. The document that certifies a policy exists and states the key coverages and terms is the:
A) Declaration Page ✓
B) Insuring Agreement
C) Conditions Clause
D) Endorsement Form
10. A policy provision that adds, deletes, or modifies the original policy is called a(n):
A) Warranty
B) Endorsement ✓
C) Rider (same as Endorsement)
D) Binder
11. A "Binder" is a:
A) Permanent insurance policy.
B) Temporary evidence of insurance until the policy is issued. ✓
C) Document that denies a claim.
D) Long-term coverage agreement.
12. The part of the policy that outlines the promises of the insurance company is the:
A) Conditions
B) Exclusions
C) Declarations
D) Insuring Agreement ✓
13. What does the "Legal Purpose" element of an insurance contract mean?
A) The contract must be for a legal purpose and not against public policy. ✓
B) The contract must be filed with the state department of insurance.
, C) The contract must be written in legal language.
D) The contract must be for a commercial entity.
14. A representation on an application that is untrue and material to the risk can lead to:
A) Automatic policy renewal
B) A premium discount
C) Rescission of the policy by the insurer ✓
D) A mandatory endorsement
15. The consideration from the insurer in an insurance contract is the:
A) Policy application
B) Promise to pay for covered losses ✓
C) Payment of premium
D) Statement of values
16. The consideration from the insured in an insurance contract is the:
A) Payment of premium and statements in the application ✓
B) Submission of a claim
C) Agreement to use approved contractors
D) Promise to avoid all risk
17. An insurer's act of rejecting an application for insurance is known as:
A) Rescission
B) Underwriting
C) Declination ✓
D) Termination
18. The process of selecting and classifying risks is called:
A) Rating
B) Underwriting ✓
C) Adjusting
D) Marketing
19. A person who receives the benefits of a life insurance policy after the insured's death is
the:
A) Assignee
B) Beneficiary ✓
C) Third-party claimant
D) Loss payee
