AINS 101 Exam questions and answers
with solutions
Loss Exposure - ANSWER Loss exposure is any condition or situation that presents a possibility
of loss, whether or not an actual loss occurs
Key Components of Insurance - ANSWER Risk, Transfer, Pooling
Risk - ANSWER Uncertainty about outcomes; can be positive or negative; insurance alleviates
the uncertainty with negative consequences
Transfer - ANSWER If someone has an insurance policy on their property they will have to
budget for the premium but not for the full cost of potential damages
Pooling - ANSWER All insureds share the cost of each other's losses; insurers combine the total
amount of premium people pay and use that money to pay off losses as they occur; this helps
keep premiums affordable and helps the insurer cover large losses when they occur
Benefits of Insurance - ANSWER 1. Pay for losses: insurance indemnifies (restores to pre-loss
status) individuals and organizations for covered losses
2. Manage cash flow uncertainty: as long as a loss is covered by insurance, the financial effect
on the insured's cash flow will be reduced to deductible payments or loss amounts that exceed
the policy limits
3. Comply with legal requirements: for example, workers compensation insurance and personal
auto insurance meet state legal requirements
4. Promote risk control activity: insurance policies may require or provide incentives to insureds
who undertake risk control activities; collected data can be used to prevent or limit losses
5. Insurance allows individuals and organizations to use their resources wisely. It also facilitates
loans, is a source of investment funds, and reduces the burden of losses and injuries on society
, Property Insurance - ANSWER Protects an insured's assets; covers the cost of repairing or
replacing property that is damaged or destroyed
Liability Insurance - ANSWER Provides payments for injury to others or damage to others
property for which the insured is legally responsible; covers cost to defend insured in related
lawsuits
Property-Casualty Insurance - ANSWER Used to refer to property and liability coverage
Types: Homeowners, Personal Auto, Personal Umbrella
Homeowners Insurance - ANSWER A type of property-casualty insurance; provides protection
when people's homes and/or belongings are damaged or stolen and liability coverage for
situations such as the family dog biting a guest
Personal Auto Insurance - ANSWER A type of property-casualty insurance; if the insured is at
fault in an accident, provides coverage for bodily injury to another person or damage to another
person's auto; typically legally required; may provide coverage for damage to the insured auto
(not wear and tear)
Personal Umbrella Insurance - ANSWER A type of property-casualty insurance; provides
additional protection for people with a high potential for large liability losses; policy limits are
usually in the millions; above the limits offered in a homeowners or an auto policy
Life Insurance - ANSWER Replaces the potential income loss through death; also helps pay
expenses related to an insured's death
Health Insurance - ANSWER Protects individuals and families from financial losses caused by
sickness and accidents
with solutions
Loss Exposure - ANSWER Loss exposure is any condition or situation that presents a possibility
of loss, whether or not an actual loss occurs
Key Components of Insurance - ANSWER Risk, Transfer, Pooling
Risk - ANSWER Uncertainty about outcomes; can be positive or negative; insurance alleviates
the uncertainty with negative consequences
Transfer - ANSWER If someone has an insurance policy on their property they will have to
budget for the premium but not for the full cost of potential damages
Pooling - ANSWER All insureds share the cost of each other's losses; insurers combine the total
amount of premium people pay and use that money to pay off losses as they occur; this helps
keep premiums affordable and helps the insurer cover large losses when they occur
Benefits of Insurance - ANSWER 1. Pay for losses: insurance indemnifies (restores to pre-loss
status) individuals and organizations for covered losses
2. Manage cash flow uncertainty: as long as a loss is covered by insurance, the financial effect
on the insured's cash flow will be reduced to deductible payments or loss amounts that exceed
the policy limits
3. Comply with legal requirements: for example, workers compensation insurance and personal
auto insurance meet state legal requirements
4. Promote risk control activity: insurance policies may require or provide incentives to insureds
who undertake risk control activities; collected data can be used to prevent or limit losses
5. Insurance allows individuals and organizations to use their resources wisely. It also facilitates
loans, is a source of investment funds, and reduces the burden of losses and injuries on society
, Property Insurance - ANSWER Protects an insured's assets; covers the cost of repairing or
replacing property that is damaged or destroyed
Liability Insurance - ANSWER Provides payments for injury to others or damage to others
property for which the insured is legally responsible; covers cost to defend insured in related
lawsuits
Property-Casualty Insurance - ANSWER Used to refer to property and liability coverage
Types: Homeowners, Personal Auto, Personal Umbrella
Homeowners Insurance - ANSWER A type of property-casualty insurance; provides protection
when people's homes and/or belongings are damaged or stolen and liability coverage for
situations such as the family dog biting a guest
Personal Auto Insurance - ANSWER A type of property-casualty insurance; if the insured is at
fault in an accident, provides coverage for bodily injury to another person or damage to another
person's auto; typically legally required; may provide coverage for damage to the insured auto
(not wear and tear)
Personal Umbrella Insurance - ANSWER A type of property-casualty insurance; provides
additional protection for people with a high potential for large liability losses; policy limits are
usually in the millions; above the limits offered in a homeowners or an auto policy
Life Insurance - ANSWER Replaces the potential income loss through death; also helps pay
expenses related to an insured's death
Health Insurance - ANSWER Protects individuals and families from financial losses caused by
sickness and accidents
