AINS 101 EXAM PREPARATION
QUESTIONS WITH VERIFIED ANSWERS
1. What is the primary purpose of insurance?
A. To eliminate all risks associated with business operations
B. To transfer uncertainty of financial loss to an insurer
C. To guarantee a profit for the insured entity
D. To prevent natural disasters from occurring
Answer: B
Conceptual Explanation: Insurance is a risk management technique that primarily
transfers the uncertainty of financial loss from the insured to the insurer in exchange for a
premium.
2. Which of the following best defines pure risk?
A. A situation that offers the chance of either loss or gain
B. A situation that offers the chance of loss or no loss, but no gain
C. A risk that can only be traded in the stock market
D. An intentional act designed to cause financial harm
,Answer: B
Conceptual Explanation: Pure risk involves only the possibilities of loss or no loss. Unlike
speculative risk, it never offers a chance for gain.
3. Which term describes a condition that increases the frequency or severity of a loss?
A. Peril
B. Indemnity
C. Hazard
D. Exposure
Answer: C
Conceptual Explanation: A hazard is a condition that increases the likelihood or potential
severity of a loss resulting from a peril.
4. What is a peril?
A. The financial consequence of an accident
B. The cause of a loss
C. A dishonest behavior by the insured
D. The maximum limit of coverage
Answer: B
, Conceptual Explanation: A peril is the direct cause of a loss, such as a fire, windstorm, or
theft.
5. Which of the following is an example of a moral hazard?
A. Leaving keys in the ignition of an unlocked car because it is insured
B. Faking an injury to collect insurance benefits
C. An icy driveway that makes walking hazardous
D. Worn-out brake pads on a delivery truck
Answer: B
Conceptual Explanation: Faking an injury or intentionally causing a loss to collect
insurance is an example of a moral hazard, which involves dishonest tendencies.
6. Leaving valuable items in plain view in an unlocked car is an example of which type of
hazard?
A. Physical hazard
B. Morale hazard
C. Moral hazard
D. Legal hazard
Answer: B
Conceptual Explanation: A morale hazard arises from a careless attitude or indifference
to loss, such as not locking doors because ‘insurance will cover it’.
QUESTIONS WITH VERIFIED ANSWERS
1. What is the primary purpose of insurance?
A. To eliminate all risks associated with business operations
B. To transfer uncertainty of financial loss to an insurer
C. To guarantee a profit for the insured entity
D. To prevent natural disasters from occurring
Answer: B
Conceptual Explanation: Insurance is a risk management technique that primarily
transfers the uncertainty of financial loss from the insured to the insurer in exchange for a
premium.
2. Which of the following best defines pure risk?
A. A situation that offers the chance of either loss or gain
B. A situation that offers the chance of loss or no loss, but no gain
C. A risk that can only be traded in the stock market
D. An intentional act designed to cause financial harm
,Answer: B
Conceptual Explanation: Pure risk involves only the possibilities of loss or no loss. Unlike
speculative risk, it never offers a chance for gain.
3. Which term describes a condition that increases the frequency or severity of a loss?
A. Peril
B. Indemnity
C. Hazard
D. Exposure
Answer: C
Conceptual Explanation: A hazard is a condition that increases the likelihood or potential
severity of a loss resulting from a peril.
4. What is a peril?
A. The financial consequence of an accident
B. The cause of a loss
C. A dishonest behavior by the insured
D. The maximum limit of coverage
Answer: B
, Conceptual Explanation: A peril is the direct cause of a loss, such as a fire, windstorm, or
theft.
5. Which of the following is an example of a moral hazard?
A. Leaving keys in the ignition of an unlocked car because it is insured
B. Faking an injury to collect insurance benefits
C. An icy driveway that makes walking hazardous
D. Worn-out brake pads on a delivery truck
Answer: B
Conceptual Explanation: Faking an injury or intentionally causing a loss to collect
insurance is an example of a moral hazard, which involves dishonest tendencies.
6. Leaving valuable items in plain view in an unlocked car is an example of which type of
hazard?
A. Physical hazard
B. Morale hazard
C. Moral hazard
D. Legal hazard
Answer: B
Conceptual Explanation: A morale hazard arises from a careless attitude or indifference
to loss, such as not locking doors because ‘insurance will cover it’.
