California Independent Adjuster Practice Exam 2025 – The Complete All-In-One Guide to Exam Success!

The bankruptcy of an insured does not affect the obligations of the insurer under the insurance policy. When an individual or entity files for bankruptcy, the insurance policy remains in force unless there are specific provisions that state otherwise. Insurers are typically required to honor their commitments in accordance with the terms of the policy, meaning that even if the insured is in bankruptcy, the insurer must still provide coverage for valid claims.

This principle is rooted in the concept that insurance is a separate contract, and the obligations of the insurer are primarily tied to the policy terms rather than the financial status of the insured. As such, the insurer remains responsible for fulfilling its obligations to pay claims, provide services, or defend the insured in liability cases as stipulated by the insurance contract, regardless of the insured's bankruptcy.

Other answer choices suggest impacts on the policy that misinterpret the ongoing obligations of the insurer. For instance, alleging that bankruptcy cancels the policy or relieves the insurer of its obligations misrepresents how insurance contracts operate in the context of bankruptcy proceedings.