AINS 101 ASSOCIATE IN GENERAL
INSURANCE PRACTICE EXAM 1
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of insurance?
a. To eliminate risk
b. To transfer risk
c. To retain risk
d. To create risk
b. To transfer risk
Insurance allows individuals or businesses to transfer financial risk to
an insurer in exchange for a premium.
2. Which of the following is considered a speculative risk?
a. Fire damage
, b. Theft
c. Stock investment
d. Flood
c. Stock investment
Speculative risks involve the chance of loss or gain and are typically
not insurable.
3. A hazard that results from a person’s indifferent attitude is a:
a. Physical hazard
b. Moral hazard
c. Morale hazard
d. Legal hazard
c. Morale hazard
A morale hazard arises from carelessness or indifference to loss
because of the existence of insurance.
4. An insurer must be able to reasonably predict future losses. This is
known as:
a. Indemnification
b. Loss pooling
c. Law of large numbers
d. Risk retention
c. Law of large numbers
The law of large numbers enables insurers to predict losses and set
premiums accurately.
, 5. A legal contract must include all of the following elements EXCEPT:
a. Agreement
b. Competent parties
c. Equal consideration
d. Legal purpose
c. Equal consideration
Insurance contracts are unilateral and do not require equal
consideration from both parties.
6. Which of the following is a contract of adhesion?
a. Lease
b. Warranty
c. Insurance policy
d. Bill of sale
c. Insurance policy
An insurance policy is drafted by the insurer and accepted by the
insured without negotiation.
7. What type of insurer is owned by its policyholders?
a. Stock insurer
b. Reciprocal insurer
c. Mutual insurer
d. Lloyd’s association
c. Mutual insurer
INSURANCE PRACTICE EXAM 1
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. What is the primary purpose of insurance?
a. To eliminate risk
b. To transfer risk
c. To retain risk
d. To create risk
b. To transfer risk
Insurance allows individuals or businesses to transfer financial risk to
an insurer in exchange for a premium.
2. Which of the following is considered a speculative risk?
a. Fire damage
, b. Theft
c. Stock investment
d. Flood
c. Stock investment
Speculative risks involve the chance of loss or gain and are typically
not insurable.
3. A hazard that results from a person’s indifferent attitude is a:
a. Physical hazard
b. Moral hazard
c. Morale hazard
d. Legal hazard
c. Morale hazard
A morale hazard arises from carelessness or indifference to loss
because of the existence of insurance.
4. An insurer must be able to reasonably predict future losses. This is
known as:
a. Indemnification
b. Loss pooling
c. Law of large numbers
d. Risk retention
c. Law of large numbers
The law of large numbers enables insurers to predict losses and set
premiums accurately.
, 5. A legal contract must include all of the following elements EXCEPT:
a. Agreement
b. Competent parties
c. Equal consideration
d. Legal purpose
c. Equal consideration
Insurance contracts are unilateral and do not require equal
consideration from both parties.
6. Which of the following is a contract of adhesion?
a. Lease
b. Warranty
c. Insurance policy
d. Bill of sale
c. Insurance policy
An insurance policy is drafted by the insurer and accepted by the
insured without negotiation.
7. What type of insurer is owned by its policyholders?
a. Stock insurer
b. Reciprocal insurer
c. Mutual insurer
d. Lloyd’s association
c. Mutual insurer
