California Life and Health Insurance Practice Exam

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Study for the California Life and Health Insurance Exam. Practice with flashcards and multiple-choice questions, each question has hints and explanations. Get ready for your exam!

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Which statement is CORRECT when describing a contract of adhesion?

Contract may be modified by the insured
Contract is legally binding with no exceptions
Contract may be accepted or rejected by the insured
Contract terms are negotiable between parties

The correct answer is: Contract may be accepted or rejected by the insured

A contract of adhesion is characterized by being drafted by one party (usually the insurer) and presented to the other party (the insured) on a take-it-or-leave-it basis. This means that the terms of the contract are not open for negotiation; the insured must either accept the contract as it is or reject it entirely. In this context, the insured does not have the ability to alter the terms of the contract, which is why the statement about the contract being accepted or rejected by the insured is the most accurate description. The other choices present concepts that do not align with the nature of a contract of adhesion. For example, modifying the contract or negotiating terms would go against the fundamental principle of adhesion, where the drafter has the unilateral authority to set the terms. Therefore, understanding this principle is essential for recognizing the non-negotiable nature of contracts of adhesion as seen in many insurance agreements.