Life & Health Insurance Practice Exam 2026 - Free Practice Questions and Study Guide

A contract of utmost good faith, also known as "uberrima fides," fundamentally relies on the principle that both parties—specifically the insurer and the insured—must act honestly and transparently at all times. This principle underscores the importance of full and accurate disclosure of relevant information, particularly regarding the risk that is being insured.

When an applicant seeks insurance coverage, it is crucial that they provide the insurer with all material facts. This entails information that could influence the insurer's decision to issue the policy or set its terms and premiums. If an applicant withholds information or presents misleading details, the contract may be rendered void. This strict requirement of honesty ensures that the insurer can assess the risk accurately, leading to fair treatment for both parties.

In contrast, the other options do not align with the foundational principles of insurance contracts. For instance, a policy that guarantees profit for the insurer would contravene the ethical premise of mutual benefit inherent in insurance. A non-transparent agreement where risks are hidden would breach the expectation of disclosure, undermining the essence of utmost good faith. Lastly, the notion of a contract that is easily cancellable does not capture the significance of trust and honesty required in insurance agreements. Thus, the requirement for full and accurate