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Quick Answer
The correct actions include creating a Key Vault access policy that grants the Azure Disk Encryption service principal the 'Wrap Key' and 'Unwrap Key' permissions. This is required because Azure Disk Encryption (ADE) relies on a key encryption key (KEK) to wrap the disk encryption keys, and when you integrate with Azure Dedicated HSM, the KEK itself is stored and managed in a physical HSM appliance that you control on-premises, ensuring encryption keys are never stored in Azure. On the AZ-500 exam, this scenario tests your understanding of how to meet compliance requirements for key sovereignty by combining ADE with Azure Dedicated HSM, a common trap being to forget that the service principal needs explicit wrap/unwrap permissions even when the key lives in an on-premises HSM. Remember the mnemonic "WU" for Wrap and Unwrap—without those two permissions, ADE cannot use the KEK to protect your disks.
AZ-500 Secure compute, storage, and databases Practice Question
This AZ-500 practice question tests your understanding of secure compute, storage, and databases. This is a configuration task: choose the command set that satisfies every stated requirement. Small differences — like 'secret' vs 'password' or 'transport input ssh' vs 'all' — change whether the answer is correct. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
Your company plans to deploy a set of Azure virtual machines (VMs) running a critical application. The security team requires that all operating system disks and temporary disks be encrypted, and that encryption keys are never stored in Azure but are managed in an on-premises HSM. Which three of the following actions should you take? (Choose three.)
Clue words in this question
Noticing these words before you look at the options changes how you read each choice.
Clue:
"never"Why it matters: Absolute qualifier. True only if the statement has zero exceptions — be cautious of options that seem obvious but break down in edge cases.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Enable Azure Disk Encryption (ADE) on the VMs using Azure Key Vault with a key encryption key (KEK).
Azure Disk Encryption (ADE) uses Azure Key Vault to protect encryption keys. To meet the requirement that keys are never stored in Azure but managed in an on-premises HSM, you must use Azure Dedicated HSM, which is a physical HSM appliance that you control and that can be integrated with on-premises key management. Additionally, you must configure a Key Vault access policy granting the Azure Disk Encryption service principal the 'Wrap Key' and 'Unwrap Key' permissions so that ADE can use the key encryption key (KEK) stored in the HSM. Enabling ADE with a KEK ensures that the disk encryption keys are wrapped (encrypted) by the KEK, and the KEK itself is stored and managed in the on-premises HSM via Azure Dedicated HSM.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Common exam traps
Common exam trap: answer the scenario, not the keyword
The trap here is that candidates often confuse Azure Key Vault Managed HSM (which stores keys in Azure) with Azure Dedicated HSM (which allows on-premises key management), or they mistakenly think that enabling encryption at host or using a passphrase-only approach satisfies the requirement for keys to never reside in Azure.
Detailed technical explanation
How to think about this question
Azure Dedicated HSM is a single-tenant, FIPS 140-2 Level 3 validated HSM appliance that you manage and can integrate with on-premises key infrastructure via secure network connectivity. When used with ADE, the KEK is generated and stored in the Dedicated HSM, and the Key Vault acts as a logical container that references the HSM-backed key; the actual key material never leaves the HSM boundary. The ADE service principal requires 'Wrap Key' and 'Unwrap Key' permissions on the KEK to perform envelope encryption, where the disk encryption key (DEK) is encrypted by the KEK and stored in the VM's metadata, while the KEK remains in the HSM.
KKey Concepts to Remember
- Read the scenario before looking for a memorised answer.
- Find the constraint that changes the correct option.
- Eliminate answers that are true in general but not in this case.
TExam Day Tips
- Watch for words such as best, first, most likely and least administrative effort.
- Review why wrong options are wrong, not only why the correct option is correct.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
How this comes up in practice
A company's IT admin needs to give a contractor read-only access to production logs without sharing account credentials. Using role-based access control (RBAC) and temporary scoped permissions — not a permanent shared password — is the correct pattern. Questions like this test whether you can apply least-privilege access across cloud identity services.
What to study next
Got this wrong? Here's your next step.
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
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Secure compute, storage, and databases — study guide chapter
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FAQ
Questions learners often ask
What does this AZ-500 question test?
Secure compute, storage, and databases — This question tests Secure compute, storage, and databases — Read the scenario before looking for a memorised answer..
What is the correct answer to this question?
The correct answer is: Enable Azure Disk Encryption (ADE) on the VMs using Azure Key Vault with a key encryption key (KEK). — Azure Disk Encryption (ADE) uses Azure Key Vault to protect encryption keys. To meet the requirement that keys are never stored in Azure but managed in an on-premises HSM, you must use Azure Dedicated HSM, which is a physical HSM appliance that you control and that can be integrated with on-premises key management. Additionally, you must configure a Key Vault access policy granting the Azure Disk Encryption service principal the 'Wrap Key' and 'Unwrap Key' permissions so that ADE can use the key encryption key (KEK) stored in the HSM. Enabling ADE with a KEK ensures that the disk encryption keys are wrapped (encrypted) by the KEK, and the KEK itself is stored and managed in the on-premises HSM via Azure Dedicated HSM.
What should I do if I get this AZ-500 question wrong?
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
Are there clue words in this question I should notice?
Yes — watch for: "never". Absolute qualifier. True only if the statement has zero exceptions — be cautious of options that seem obvious but break down in edge cases.
What is the key concept behind this question?
Read the scenario before looking for a memorised answer.
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Last reviewed: Jun 11, 2026
This AZ-500 practice question is part of Courseiva's free Microsoft certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the AZ-500 exam.
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