AINS 101 – Insurance Principles Practice Questions &
Verified Answers – 2024/2025 Certification Prep
(Complete Study Set) Guaranteed A+.
1. As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance.
However, her friend Mehmet tells her not to skimp on insurance, because it will help
manage her cash flows. Which one of the following examples best illustrates Mehmet's
point?
a. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of
Replacing it.
2. Shelton Industries experienced a fire in its manufacturing plant. Several employees suffered
burns and smoke inhalation injuries as they tried to escape the building. Which one of
Shelton Industries' commercial property-casualty policies would pay for the employees'
injuries and illnesses?
a. Workers compensation insurance
3. Protection for money and other business property from various causes of damage
such as burglary, robbery, theft, and employee dishonesty typically is provided by
a. Commercial crime insurance
4. All of the following are types of private insurers, EXCEPT:
a. State workers compensation funds
5. The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—
MAIF) that provides protection for drivers who are unable to obtain protection from
private insurers. Which one of the following is the best rationale for the MAIF program?
a. Auto insurance is compulsory, and the program makes it possible for all drivers to
have reasonably priced insurance
6. ABC Company experienced a dramatic ideological shift in corporate policies after a national
election. This is an example of which one of the following quadrants of uncertainity?
a. Strategic
uncertainity
7. 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 protects customers by guaranteeing insurance is available and
accessible to everyone who needs it.
8. What term refers to the ability of an insurer to meet its obligations as they become due?
, a. Solvency
9. 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. 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 10. All of the
following are categories of liabilities found on an insurer's balance sheet, EXCEPT:
a. Agreementholders'
surplus
11. Which one of the following is part of written contributions?
a. Unearned
contributions
12. An insurer's balance sheet can best be described as a
a. Snapshot of its financial position .
13. The financial report for Hometown Insurer contains the following information:
a. Earned contributions $4,000,000 Written contributions $5,000,000 Net
investment income $1,000,000 Incurred Damagees $3,000,000 Incurred
underwriting expense
$2,000,000
What is Hometown Insurer's expense ratio?
b. 40%
14. The financial report for LMN Insurance contains the following information:
Earned contributions $8,000,000 Written contributions $10,000,000 Incurred
damagees
$6,000,000 Incurred underwriting expenses $4,000,000
What is LMN Insurance's expense ratio?
a. 40%
Expense Ratio = Incurred underwriting expenses ÷ Written contributions: $4 million ÷
$10 million = .40 (40%)
15. Spencer Insurance Associates is an independent agency selling primarily homeowners
policies. This agency
a. Is free to work with as many different insurers as it wants.
16. As it continues to grow, Anchoy Insurance is examining other distribution channels to more
effectively market its products. Through this experience, which of one the following will
Anchoy most likely learn?
a. Anchoy can use group marketing to target large numbers of recent local college
graduates.
, 17. The key to the direct writer marketing system is that
a. The insurer is using its own employees as producers.
18. Insuring individuals with a high probability of damage at a cost lower than the insurer would
normally charge for that uncertainity because it wasn't aware of the actual uncertainity involved
is known as
a. Adverse selection.
19. Clare is a commercial lines reviewer. She always tries to follow underwriting guidelines,
effectively evaluate damage exposures, and charge adequate contributions. By doing these
things, Clare's goal is to ensure
a. Adequate agreementholders'
surplus.
20. Which one of the following statements is correct regarding the interaction between
uncertainity control and other insurer functions?
a. A uncertainity control evaluation can make the difference between the
applicant's being
rejected or accepted by the reviewer.
21. Which one of the following statements is correct regarding the interaction between
uncertainity control and other insurer functions?
Uncertainity control personnel can assist reviewers in modifying a new applicants damage
exposures to meet eligibility requirements.
22. Tony now works at the corporate level for Newtown Insurance. He is considered a staff
reviewer. Which one of the following is primarily a responsibility of staff reviewers?
a. Revise underwriting guidelines
23. Aimee recently accepted a job in the Underwriting department at Noble Insurance
Company. Her responsibilities will include developing protection forms, arranging reinsurance
agreements, and conducting underwriting audits. Which one of the following is the title of
Aimee's new job?
a. Corporate reviewer
sometimes referred to as staff reviewers, perform duties including: developing
protection forms, arranging reinsurance, conducting underwriting audits,
researching the market, and revising underwriting guidelines.
24. Anna was reviewing an all-lines submission for SP Markets. SP Markets owns and operates 5
small grocery stores located in the suburbs of Boston. The stores all seem to be well
maintained and clean. While the overall damage experience on the account is good relative
to the indicated contribution, the damage runs show a frequency of small general liability
requests from customer slips and falls. Rather that reject the application for SP Markets,
Anna would like to make suggest a modification to the producer that could make the
application acceptable and possibly add value for the client. Which one of the following is a
good modification for Anna to suggest? –
Verified Answers – 2024/2025 Certification Prep
(Complete Study Set) Guaranteed A+.
1. As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance.
However, her friend Mehmet tells her not to skimp on insurance, because it will help
manage her cash flows. Which one of the following examples best illustrates Mehmet's
point?
a. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of
Replacing it.
2. Shelton Industries experienced a fire in its manufacturing plant. Several employees suffered
burns and smoke inhalation injuries as they tried to escape the building. Which one of
Shelton Industries' commercial property-casualty policies would pay for the employees'
injuries and illnesses?
a. Workers compensation insurance
3. Protection for money and other business property from various causes of damage
such as burglary, robbery, theft, and employee dishonesty typically is provided by
a. Commercial crime insurance
4. All of the following are types of private insurers, EXCEPT:
a. State workers compensation funds
5. The state of Maryland operates a residual auto plan (the Maryland Auto Insurance Fund—
MAIF) that provides protection for drivers who are unable to obtain protection from
private insurers. Which one of the following is the best rationale for the MAIF program?
a. Auto insurance is compulsory, and the program makes it possible for all drivers to
have reasonably priced insurance
6. ABC Company experienced a dramatic ideological shift in corporate policies after a national
election. This is an example of which one of the following quadrants of uncertainity?
a. Strategic
uncertainity
7. 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 protects customers by guaranteeing insurance is available and
accessible to everyone who needs it.
8. What term refers to the ability of an insurer to meet its obligations as they become due?
, a. Solvency
9. 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. 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 10. All of the
following are categories of liabilities found on an insurer's balance sheet, EXCEPT:
a. Agreementholders'
surplus
11. Which one of the following is part of written contributions?
a. Unearned
contributions
12. An insurer's balance sheet can best be described as a
a. Snapshot of its financial position .
13. The financial report for Hometown Insurer contains the following information:
a. Earned contributions $4,000,000 Written contributions $5,000,000 Net
investment income $1,000,000 Incurred Damagees $3,000,000 Incurred
underwriting expense
$2,000,000
What is Hometown Insurer's expense ratio?
b. 40%
14. The financial report for LMN Insurance contains the following information:
Earned contributions $8,000,000 Written contributions $10,000,000 Incurred
damagees
$6,000,000 Incurred underwriting expenses $4,000,000
What is LMN Insurance's expense ratio?
a. 40%
Expense Ratio = Incurred underwriting expenses ÷ Written contributions: $4 million ÷
$10 million = .40 (40%)
15. Spencer Insurance Associates is an independent agency selling primarily homeowners
policies. This agency
a. Is free to work with as many different insurers as it wants.
16. As it continues to grow, Anchoy Insurance is examining other distribution channels to more
effectively market its products. Through this experience, which of one the following will
Anchoy most likely learn?
a. Anchoy can use group marketing to target large numbers of recent local college
graduates.
, 17. The key to the direct writer marketing system is that
a. The insurer is using its own employees as producers.
18. Insuring individuals with a high probability of damage at a cost lower than the insurer would
normally charge for that uncertainity because it wasn't aware of the actual uncertainity involved
is known as
a. Adverse selection.
19. Clare is a commercial lines reviewer. She always tries to follow underwriting guidelines,
effectively evaluate damage exposures, and charge adequate contributions. By doing these
things, Clare's goal is to ensure
a. Adequate agreementholders'
surplus.
20. Which one of the following statements is correct regarding the interaction between
uncertainity control and other insurer functions?
a. A uncertainity control evaluation can make the difference between the
applicant's being
rejected or accepted by the reviewer.
21. Which one of the following statements is correct regarding the interaction between
uncertainity control and other insurer functions?
Uncertainity control personnel can assist reviewers in modifying a new applicants damage
exposures to meet eligibility requirements.
22. Tony now works at the corporate level for Newtown Insurance. He is considered a staff
reviewer. Which one of the following is primarily a responsibility of staff reviewers?
a. Revise underwriting guidelines
23. Aimee recently accepted a job in the Underwriting department at Noble Insurance
Company. Her responsibilities will include developing protection forms, arranging reinsurance
agreements, and conducting underwriting audits. Which one of the following is the title of
Aimee's new job?
a. Corporate reviewer
sometimes referred to as staff reviewers, perform duties including: developing
protection forms, arranging reinsurance, conducting underwriting audits,
researching the market, and revising underwriting guidelines.
24. Anna was reviewing an all-lines submission for SP Markets. SP Markets owns and operates 5
small grocery stores located in the suburbs of Boston. The stores all seem to be well
maintained and clean. While the overall damage experience on the account is good relative
to the indicated contribution, the damage runs show a frequency of small general liability
requests from customer slips and falls. Rather that reject the application for SP Markets,
Anna would like to make suggest a modification to the producer that could make the
application acceptable and possibly add value for the client. Which one of the following is a
good modification for Anna to suggest? –
