AINS 101 ASSOCIATE IN GENERAL
INSURANCE PRACTICE EXAM 2
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. Which of the following best defines risk in insurance terms?
A. A guarantee of loss
B. Uncertainty about outcomes that can be insured
C. A situation that always causes financial gain
D. A known event with predictable results
Rationale: Risk in insurance is defined as uncertainty regarding
financial loss.
2. The principle of indemnity ensures:
A. The insured always profits from a loss
, B. The insured is restored to their original financial position
C. Insurers charge the same premiums to all insureds
D. Only speculative risks are covered
Rationale: Indemnity restores the insured to the financial position
they were in before the loss, without profit.
3. A hazard is best described as:
A. A guaranteed loss
B. A condition that increases the likelihood or severity of a loss
C. The value of the insured asset
D. A type of insurance coverage
Rationale: Hazards are conditions that increase the chance of loss,
such as icy roads or faulty wiring.
4. A peril is:
A. A clause in an insurance policy
B. The cause of loss
C. A type of risk retention
D. A legal doctrine
Rationale: Perils are specific causes of loss like fire, theft, or
windstorm.
5. Which of the following is an example of a physical hazard?
A. Dishonesty
B. Faulty electrical wiring
C. Poor business decisions
, D. Gambling addiction
Rationale: A physical hazard is a tangible condition, like faulty
wiring, that increases the chance of loss.
6. Underwriting is primarily responsible for:
A. Paying claims
B. Marketing policies
C. Assessing risk and determining policy terms
D. Reinsuring policies
Rationale: Underwriters assess risk, set premiums, and determine
terms to ensure proper risk selection.
7. Adverse selection occurs when:
A. Only safe risks are selected
B. Insurers lower premiums across the board
C. High-risk individuals are more likely to purchase insurance
D. Agents select risks on their own
Rationale: Adverse selection is when those most likely to experience
a loss are also most likely to seek insurance.
8. The law of large numbers helps insurers to:
A. Predict losses more accurately
B. Increase premiums
C. Decrease market competition
D. Determine profits
INSURANCE PRACTICE EXAM 2
QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES
2025
1. Which of the following best defines risk in insurance terms?
A. A guarantee of loss
B. Uncertainty about outcomes that can be insured
C. A situation that always causes financial gain
D. A known event with predictable results
Rationale: Risk in insurance is defined as uncertainty regarding
financial loss.
2. The principle of indemnity ensures:
A. The insured always profits from a loss
, B. The insured is restored to their original financial position
C. Insurers charge the same premiums to all insureds
D. Only speculative risks are covered
Rationale: Indemnity restores the insured to the financial position
they were in before the loss, without profit.
3. A hazard is best described as:
A. A guaranteed loss
B. A condition that increases the likelihood or severity of a loss
C. The value of the insured asset
D. A type of insurance coverage
Rationale: Hazards are conditions that increase the chance of loss,
such as icy roads or faulty wiring.
4. A peril is:
A. A clause in an insurance policy
B. The cause of loss
C. A type of risk retention
D. A legal doctrine
Rationale: Perils are specific causes of loss like fire, theft, or
windstorm.
5. Which of the following is an example of a physical hazard?
A. Dishonesty
B. Faulty electrical wiring
C. Poor business decisions
, D. Gambling addiction
Rationale: A physical hazard is a tangible condition, like faulty
wiring, that increases the chance of loss.
6. Underwriting is primarily responsible for:
A. Paying claims
B. Marketing policies
C. Assessing risk and determining policy terms
D. Reinsuring policies
Rationale: Underwriters assess risk, set premiums, and determine
terms to ensure proper risk selection.
7. Adverse selection occurs when:
A. Only safe risks are selected
B. Insurers lower premiums across the board
C. High-risk individuals are more likely to purchase insurance
D. Agents select risks on their own
Rationale: Adverse selection is when those most likely to experience
a loss are also most likely to seek insurance.
8. The law of large numbers helps insurers to:
A. Predict losses more accurately
B. Increase premiums
C. Decrease market competition
D. Determine profits
