AINS 101 EXAM WITH CORRECT
ANSWERS 2025
Which one of the following statements is correct regarding the benefits
provided by insurance?
A.Insurance reduces the financial consequences of loss exposures but not
the related uncertainty.
B.The reduction in losses paid by insurers due to risk control
measures benefits individual insureds but not society as a whole.
C.Insurance helps reduce the financial burden to society by
compensating accident victims.
D.The primary role of insurance is to meet mandatory insurance
requirements. ( correct answers )
C. Insurance helps reduce the financial burden to society by
compensating accident victims.
Which one of the following represents uncertainty about outcomes that can
be negative or positive?
E. Risk
F. Transfer
G. Loss exposure
H. Pooling ( correct answers ) A. Risk
The insurance agent suggested that Sally's Snack Shop buy a policy that
combines property, crime, and liability coverages into one policy. This is
referred to as a(n)
I. Commercial package policy (CPP).
J. Commercial umbrella policy.
K. Employee dishonesty policy.
L.Workers compensation policy. ( correct answers ) A.
Commercial package policy (CPP).
Commercial Umbrella Policy ( correct answers ) Type of policy that
provides broad coverage for an insured's liability over and above liability
covered by an underlying contract.
Commercial Crime Insurance ( correct answers ) Coverage for money
and other business property from various causes of loss such as
burglary, robbery, theft, and employee dishonesty
An insurer that was formed for the purpose of earning a profit for its
stockholders is a
M.Mutual insurer.
N. Reciprocal insurance exchange.
,C. Stock insurer.
D. Captive insurer. ( correct answers ) C. Stock insurer.
Mutual Insurer ( correct answers ) An insurer that is owned by its
policyholders and formed as a corporation for the purpose of providing
insurance to them.
Artificial intelligence ( correct answers ) a
subdiscipline of computer science that attempts to simulate human
thinking
Mechanical sensors ( correct answers ) monitoring devices that can
be used to determine position of components, force applied, or
movement of parts.
Which one of the following best describes the concept of pooling?
A. The financial consequences of unanticipated losses are transferred to
an insurer.
B. Insureds share the cost of each other's losses.
C. Risk management is concerned with positive and negative risks.
D. Insurance benefits society as a whole. ( correct answers )
B. Insureds share the cost of each
other's losses.
A type of insurer that is owned by policyholders and may pay dividends to
policyholders as a return of a portion of premiums paid is a
A. Captive insurer.
B. Mutual insurer.
C. Reciprocal insurance exchange.
D. Stock insurer. ( correct answers )B. Mutual insurer.
Speculative risk ( correct answers ) A chance of loss, no loss, or gain.
Pure risk ( correct answers ) a risk that presents the chance of
loss but no opportunity for gain
Strategic risk ( correct answers ) A dramatic ideological shift in
corporate policies after a national election is an example of strategic risk
Carlos is new to the insurance business and is learning about insurance
regulation and what he, now working with Grady Insurance, will need to be
aware of regarding the subject of compliance. Which one of the following
will Carlos find is accurate as he better understands why insurance is
regulated?
A. Insurance regulation prevents insurers from covering catastrophic
occurrences so insurers can remain solvent.
B. The U.S. insurance industry is governed by federal laws that protect
citizens by leveling the playing field for insurers and policyholders
C. Insurance regulation speaks to the types of risks insurers may cover,
but does not play a part in how they invest their profits.
D. Insurance regulation protects customers by guaranteeing insurance is
available and accessible to everyone who needs it. ( correct answers )
D. Insurance regulation
, protects customers by guaranteeing insurance is available and accessible
to everyone who needs it.
One of the reasons for insurance regulation is to prevent destructive
competition. In which one of the following scenarios would destructive
competition be exhibited?
A. North Insurance is trying to break into a specialized type of insurance
market that is
generally out of range for most customers; North decides to price its
coverages commensurate with other insurers offering similar policies.
B.South Insurance purposely writes its policies with hard-to-understand
terminology that only its agents can explain, so that its insureds will
purchase its products without
asking a lot of questions.
C.West Insurance has had three straight years of record-setting low
claims and has accumulated more than expected profits; it plans on the
trend continuing and overspends on new long-term investments.
D.East Insurance comes up with a new rate structure allowing "preferred
customers" discounted policies when they continually ren ( correct
answers ) D. East Insurance comes up with a new rate structure allowing
"preferred customers" discounted policies when they continually renew year
after year; East eventually loses needed revenue but is rewarded by its
competitors leaving the market.
An insurer's financial statement shows a loss reserve and an unearned
premium reserve. These reserves are part of the insurer's
E. Nonadmitted assets.
F. Policyholders' surplus
G. Total liabilities.
H. Admitted assets. ( correct answers ) C. Total liabilities.
Which one of the following is shown on the balance sheet of an
insurer?
I. Acquisition expenses
J. Incurred losses
K. Cash and short-term investments
L. Net investment income ( correct answers ) C. Cash and short-
term investments
Expense Ratio ( correct answers ) An insurer's incurred underwriting
expenses for a given period divided by its written premiums for the same
period.
The financial report for Hometown Insurer contains the following
information: Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income
$1,000,000 Incurred Losses
$3,000,000
Incurred underwriting expense
$2,000,000
What is Hometown Insurer's
expense ratio?
M.20%
N. 40%
O. 50%
ANSWERS 2025
Which one of the following statements is correct regarding the benefits
provided by insurance?
A.Insurance reduces the financial consequences of loss exposures but not
the related uncertainty.
B.The reduction in losses paid by insurers due to risk control
measures benefits individual insureds but not society as a whole.
C.Insurance helps reduce the financial burden to society by
compensating accident victims.
D.The primary role of insurance is to meet mandatory insurance
requirements. ( correct answers )
C. Insurance helps reduce the financial burden to society by
compensating accident victims.
Which one of the following represents uncertainty about outcomes that can
be negative or positive?
E. Risk
F. Transfer
G. Loss exposure
H. Pooling ( correct answers ) A. Risk
The insurance agent suggested that Sally's Snack Shop buy a policy that
combines property, crime, and liability coverages into one policy. This is
referred to as a(n)
I. Commercial package policy (CPP).
J. Commercial umbrella policy.
K. Employee dishonesty policy.
L.Workers compensation policy. ( correct answers ) A.
Commercial package policy (CPP).
Commercial Umbrella Policy ( correct answers ) Type of policy that
provides broad coverage for an insured's liability over and above liability
covered by an underlying contract.
Commercial Crime Insurance ( correct answers ) Coverage for money
and other business property from various causes of loss such as
burglary, robbery, theft, and employee dishonesty
An insurer that was formed for the purpose of earning a profit for its
stockholders is a
M.Mutual insurer.
N. Reciprocal insurance exchange.
,C. Stock insurer.
D. Captive insurer. ( correct answers ) C. Stock insurer.
Mutual Insurer ( correct answers ) An insurer that is owned by its
policyholders and formed as a corporation for the purpose of providing
insurance to them.
Artificial intelligence ( correct answers ) a
subdiscipline of computer science that attempts to simulate human
thinking
Mechanical sensors ( correct answers ) monitoring devices that can
be used to determine position of components, force applied, or
movement of parts.
Which one of the following best describes the concept of pooling?
A. The financial consequences of unanticipated losses are transferred to
an insurer.
B. Insureds share the cost of each other's losses.
C. Risk management is concerned with positive and negative risks.
D. Insurance benefits society as a whole. ( correct answers )
B. Insureds share the cost of each
other's losses.
A type of insurer that is owned by policyholders and may pay dividends to
policyholders as a return of a portion of premiums paid is a
A. Captive insurer.
B. Mutual insurer.
C. Reciprocal insurance exchange.
D. Stock insurer. ( correct answers )B. Mutual insurer.
Speculative risk ( correct answers ) A chance of loss, no loss, or gain.
Pure risk ( correct answers ) a risk that presents the chance of
loss but no opportunity for gain
Strategic risk ( correct answers ) A dramatic ideological shift in
corporate policies after a national election is an example of strategic risk
Carlos is new to the insurance business and is learning about insurance
regulation and what he, now working with Grady Insurance, will need to be
aware of regarding the subject of compliance. Which one of the following
will Carlos find is accurate as he better understands why insurance is
regulated?
A. Insurance regulation prevents insurers from covering catastrophic
occurrences so insurers can remain solvent.
B. The U.S. insurance industry is governed by federal laws that protect
citizens by leveling the playing field for insurers and policyholders
C. Insurance regulation speaks to the types of risks insurers may cover,
but does not play a part in how they invest their profits.
D. Insurance regulation protects customers by guaranteeing insurance is
available and accessible to everyone who needs it. ( correct answers )
D. Insurance regulation
, protects customers by guaranteeing insurance is available and accessible
to everyone who needs it.
One of the reasons for insurance regulation is to prevent destructive
competition. In which one of the following scenarios would destructive
competition be exhibited?
A. North Insurance is trying to break into a specialized type of insurance
market that is
generally out of range for most customers; North decides to price its
coverages commensurate with other insurers offering similar policies.
B.South Insurance purposely writes its policies with hard-to-understand
terminology that only its agents can explain, so that its insureds will
purchase its products without
asking a lot of questions.
C.West Insurance has had three straight years of record-setting low
claims and has accumulated more than expected profits; it plans on the
trend continuing and overspends on new long-term investments.
D.East Insurance comes up with a new rate structure allowing "preferred
customers" discounted policies when they continually ren ( correct
answers ) D. East Insurance comes up with a new rate structure allowing
"preferred customers" discounted policies when they continually renew year
after year; East eventually loses needed revenue but is rewarded by its
competitors leaving the market.
An insurer's financial statement shows a loss reserve and an unearned
premium reserve. These reserves are part of the insurer's
E. Nonadmitted assets.
F. Policyholders' surplus
G. Total liabilities.
H. Admitted assets. ( correct answers ) C. Total liabilities.
Which one of the following is shown on the balance sheet of an
insurer?
I. Acquisition expenses
J. Incurred losses
K. Cash and short-term investments
L. Net investment income ( correct answers ) C. Cash and short-
term investments
Expense Ratio ( correct answers ) An insurer's incurred underwriting
expenses for a given period divided by its written premiums for the same
period.
The financial report for Hometown Insurer contains the following
information: Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income
$1,000,000 Incurred Losses
$3,000,000
Incurred underwriting expense
$2,000,000
What is Hometown Insurer's
expense ratio?
M.20%
N. 40%
O. 50%
